A Sick Economy
Market Commentary
By Charles Payne, CEO & Principal Analyst

The decision is in from the Supreme Court where the individual mandate was upheld but not because of the commerce clause. Instead the law is valid because Congress has the power to raise taxes, which is what this boils down to. Another tax in a long line of taxes that looms large. The good news is people can affect taxes by voting for politicians that understand high taxes mean sluggish economies. I'm going to go into greater detail in tomorrow morning's update, but for now the market is under pressure because all the ills of the economy remain in place. That place is a bunker trying to brace for a fall off the fiscal cliff.

Two Steps Forward, one Larger Step Back
By Carlos Guillen

After making nice gains during the last two sessions, equity markets are heading back south, as the macroeconomic data is just not indicating that we will be out of this malaise anytime soon.

Initial Claims data posted earlier today was not really encouraging. According to the Labor Department, initial claims during the week ended June 23 totaled 386,000, decreasing from the 392,000 revised figure reported for the prior week, landing above the Street's estimate of 385,000. The initial claims level had ticked higher in the prior week, but now it appears that the number of firings May be reversing, although it is still too early to tell. Moreover, given the trend we've been observing, it would not be surprising to see this week's initial claims level revised higher next week. Nonetheless, the fact is that given the current higher than normal unemployment rate and the slowing nonfarm gains, the current initial claims level is simply not good enough to give any type of hope that things will get better. Payrolls in May expanded by 69,000 workers, at the slowest pace in a year, and have diminished each month since January. In addition, the jobless rate, which climbed to 8.2 percent in May, has been stuck above 8 percent since February 2009. At the moment the economy is counting on the consumer to give it a little bit of growth, as all other legs of the economic are pretty much stagnant, if not in decline. So with job creation stalling, the risk is increasing that economic growth may also stall this year.

Earlier this morning, the U.S. Department of Commerce delivered a bit of rather relieving news, announcing that real Gross Domestic Product (GDP) growth during the first quarter of 2012 was just as previously estimated. Given all the reductions to forecasts for GDP growth most recently, a reduction to the first quarter estimate was certainly not ruled out. As it stands, real GDP growth for the March quarter was 1.9 percent, in line with the Street's estimate of 1.9 percent, remaining flat with the prior estimate posted a month ago, which in turn was lower than the first estimate of 2.2 percent posted a two months ago.

While the GDP result inspired a sigh of relief, the fact that consumer spending was revised lower served as proof that all is not well. The GDP revision reflected a smaller gain in consumer spending that was offset by a gain in commercial construction and a smaller trade deficit than previously reported. In the March quarter, Personal Consumption Expenditures rose at a 2.5 percent annual pace compared with a previously reported 2.7 percent gain. On a bit of a positive note, consumption has been ramping higher during the last three quarters, increasing 1.7 percent in the September quarter and increasing 2.1 percent in the December quarter. Given that consumption represents approximately 70 percent of GDP, it is critical that growth in this segment of the economy is maintained. However, most signs are that the consumer is facing an increasingly worsening backdrop, as unemployment and income growth are heading in the wrong direction.

All in all, the data today coupled with the Supreme Court's ruling on Obamacare are making investors scared of what lies ahead, making them take one large step back after taking two steps forward. Consequently, stocks have given up all the gains that were achieved in the past two days, with the Dow Jones Industrial Average down over 130 points, or over one percent. With the meetings in Europe still taking place, we can surely expect stocks to oscillate till the end of the week.

Obamacare Gets the Okay
By David Urani

I'll admit, I thought the individual mandate was going to get struck down but it was left mostly intact despite a narrow decision by the Supreme Justices. Of course, there are a number of winners and losers, although the big loser today is the entire market, which now has to deal with higher healthcare costs for virtually all employers. The decision wiped away roughly 60 Dow points on initial reaction.

Hospitals are happy about this decision because when it comes down to it, more people with insurance means more business for them, along with higher reimbursement rates. HCA (HCA), Universal Health Services (UHS), LifePoint (LPNT) and Tenet (THC) are among hospitals that were up in high single-digit percentages on the ruling.

Insurers are among the losers, as they will be more obligated to pay, including patients with pre-existing conditions. The likes of Aetna (AET), Cigna (CI), WellPoint (WLP) and United Health (UNH) took hits, mostly in the mid-single digit percentages.

Aside from the individual mandate there was also the issue of taxes on medical device makers. It would've been a real surprise for this to get struck down, so the action isn't huge but nevertheless the likes of Medtronic (MDT), Stryker (SYK), St. Jude (STJ) and Intuitive Surgical (ISRG) took a small dent. The same goes for pharmaceutical companies who may take a hit on margins as lawmakers seek to make medication more affordable; Pfizer (PFE), Eli Lilly (LLY), Merck (MRK), Novartis (NVS) and others took very small hits.

Opposing Obesity

Off the beaten path there has been some action in the weight-loss business over the past couple of days. Wednesday saw that big decision by the FDA to approve Arena Pharmaceuticals' (ARNA) anti-obesity drug which saw that stock soar and potentially gave rise to a big new drug fad, with another potential player, Vivus (VVUS), also up in sympathy. Where it has gotten funny is in the diet companies Weight Watchers (WTW) and NutriSystem (NTRI), who were down Wednesday on the drug ruling, but were up more than 3% today as Credit Suisse says employers may incentivize weight loss to save on healthcare costs. That move seems like a bit of a stretch to me.

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