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Fear and Greed: What we Can Learn from Pullbacks

April 02, 2017

It was a disaster.

All hopes for a newhealthcare bill were crushed after House Speaker Paul Ryan pulled the American Health Care Act (AHCA) off the floor moments before a vote. Several Republican moderates and conservative lawmakers left the Administration short of votes, ensuring that Trump’s first legislative effort to overhaul healthcare would have failed to get the number of votes needed.

Butit was great news for a handful of healthcare stocks that have benefitted from Obamacare.

Over the past four days, HCA Holdings Inc. (HCA) shot from $82 to $90.  Tenet Healthcare (THC) jumped from $16 to $19.50.  Universal Health Services (UHS) ran from $118.90 to $127.

It was just the rest of the market that had a tough time with it.  In fact, the Dow fell more than 180 points on the intial news -- a severe overreaction from an outrageous herd.  That’s because the healthcare bill failure now called into question Trump’s ability to get other key parts of his agenda up and running.

Many are fearful that his pro-business agenda – including tax cuts, regulatory changes, and infrastructure plans – could face the same fate.

“Trump’s failure to get the health care bill through a Republican majority led Congress has raised some concerns about the President’s ability to implement his agenda of cutting taxes and raising infrastructure spending,” Ole Hansen, chief commodity strategist at Saxo Bank, as quoted by Reuters. “Failure would deflate further the months-long rally in stocks while reducing the need for further Fed action. The result of this has seen the dollar, stocks and bond yields lower which are all good news for investors looking for gold as an alternative.”

Sure, the healthcare bill failure isn’t the greatest news.  However, we have to consider that markets may be overreacting.  This is another textbook example where, if the result doesn’t match with market expectations, markets drop like a rock.

Usually, they bounce back not long after.  And that could happen here, proving that markets are resilient to setbacks.

Lesson learned – On any given day, it’s best to ignore the noise of the markets.

Drops that we just witnessed are oftentimes based on nothing more than overreaction and irrational reactions to noise.  While corrections take the froth off the markets, they can also expose buying opportunities.


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