Health Care XLV and The Massachusetts Senate Race Tuesday

Jan 16, 2010: 8:31 PM CST

It’s rare when a special Senate election might have a direct effect not just on the Health Care sector, but the broader Stock Market in general… and the direction of governmental policies until the next mid-term election in November 2010.

However, that’s exactly what might happen when residents in Massachusetts go to the polls on Tuesday, January 19th to elect either Democrat Martha Coakley or Republican Scott Brown in a special election to fill the seat of the late-Ted Kennedy.

Should Democrat Martha Coakley win, then the Democrats in the US Senate will maintain their “super-majority” (60 votes) which is the exact number necessary to overcome Republican filibusters – a unique procedure to stall and defeat legislation.  With 60 votes, Democrats can easily overcome filibusters and – in reference to Health Care – pass the Health Care Reform Legislation currently before Congress.

Should Republican Scott Brown win the election – an outcome deemed impossible a few weeks ago – then Democrats would have 59 votes in the Senate – one shy of the ‘magic’ 60 threshhold to overcome the filibuster… and likely doom the Health Care bill along with many other legislative initiatives they planned on passing while they enjoyed the super-majority status.

It is generally accepted (currently) as a certainty that the Democrats will lose Senate seats to Republican this November (2010 mid-term election), and thus lose the super-majority status then (when Congress reconvenes in 2011), so they will want to pass as much legislation as possible while they have the votes.

It may be difficult to understand for overseas observers to understand, but in the US Congress, a simple majority is sometimes not sufficient to pass key or important legislation due to the filibuster procedure in the Senate (see this link on the “Filibuster” from Wikipedia for full information).

What is the bottom line?

If voters in Massachusetts elect the Republican candidate Scott Brown, then odds are overwhelming that the current Health Care bill as proposed (and passed both chambers) in Congress will not be passed… I would go as far as to say it will certainly not be passed (in current form).

For a full discussion, see the following post from Mish at Global Economic Trend Analysis entitled, “Massachusetts Upset in the Making:  Scott Brown Pulls Ahead of Martha Coakley.

How does this affect Health Care Stocks?

This question is not as easy as “If Scott Brown wins, then the Health Care Bill is dead,” because it depends on what happens, as in whether Democrats fail to pass any bill through the Senate, or if they moderate the bill to bring on one or two (or more) votes from Republican Senators such as Olympia Snowe (which might be crafted to be favorable to Health Care companies).

First, let’s take a current look at the Health Care sector ETF – symbol XLV:

The ETF is currently just shy of the critical $33.00 per share overhead resistance level, which reflects the August 2008 swing high.

It would be very bullish if price can rise above the $33.00 level, and would argue in favor of a retracement at least to the $30.00 level if not.

We should know on Wednesday or Thursday of this week as to how the Health Care industry (companies and stock prices) react to the results of Tuesday evening’s election – whether the seat stays in the hands of the Democrats or switches to the Republicans, which again would be a major defeat to Obama and the Democratic Agenda in Congress.

Of course,  a Democratic defeat would affect policies well-beyond Health Care, but for now, it is easier to focus on Health Care stocks and how they react in the week ahead.

So in the course of your market analysis this week – with the three-day weekend – pay particular attention to the outcome of the carefully watched special Senate race in Massachusetts and what that might mean for your trades, investments, or portfolio.  Study this issue in more detail.

You might very well need to make a few key shifts if the Republican wins.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

7 Comments

7 Responses to “Health Care XLV and The Massachusetts Senate Race Tuesday”

  1. mikevadon Says:

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  2. Tonloc Says:

    great post. I hadn't seen much on the blogs out there but I see it a great market tell

  3. denverdjs Says:

    Me thinks that the Democrats won't let a Brown win doom the bill. Andrew Sullivan has a post on his blog about a few options the Democrats can resort to should Brown win.
    1) Quickly finish house-senate negotiations and pass the finished bill before Brown is seated.
    2) Have the House pass the Senate bill “as-is” and stipulate that another bill resolving the conflicts be passed in the future using reconciliation (only requiring a simple majority vote).
    3) Go back to GOP Senator Snowe for support of Senate Bill. All of her substantive objections to the original bill have been removed.

  4. Corey Rosenbloom, CMT Says:

    I'm not sure Democrats will try to expedite passage so soon, particularly since moderate and conservative Democrats might be afraid of losing their seat in November if the bill is passed with such lightning speed after a 'referendum' election failed.

    Tough situation, though.

    What I'm reading/hearing on the news is that the House – remember which passed the bill 220-215 (218 votes are required) – does not have the votes to pass the Senate bill, and three defections kills the compromise bill.

    With a Brown win, it looks like they'll have to rewrite the bill to be more moderate and pick-up a few moderate Republicans (Snowe, etc).

  5. denverdjs Says:

    I think the timing of the State of Union next week is a strategic decision on the part of the Administration. They will pressure the House to accept the already passed Senate bill and fix it with reconciliation.

    The House will get the votes, I think. For any that don't want to vote, they'll take something over nothing. And for any votes they lose, they will gain from several Dems that didn't vote for the initial measure (e.g. blue dogs in house that preferred Senate measure).

    Obama will pivot immediately next week to a populist message going after banks and talking deficit reduction. The Dems will try to marginalize GOP talking points for the rest of the year in mid-term run up.

  6. Corey Rosenbloom, CMT Says:

    I figured Mr. Brown would win with the enthusiasm and momentum on his side – still a shock that Massachusetts elected a Republican Senator but it is what it is!

    I figure that conservative or moderate Democrats – after seeing the gubernatorial losses in New Jersey (Corzine) and Virginia – will be 'running scared' and will be less likely to pass Health Care, and their votes will be lost and refuse the “jam it down the throats” approach.

    Difficult political calculations for them.

    Possibly – Obama needs to pivot to the Economy, Jobs, Deficit, etc or else we're looking at a Republican take-over of the House… and perhaps the Senate in November… just like 1994.

  7. Corey Rosenbloom, CMT Says:

    I figured Mr. Brown would win with the enthusiasm and momentum on his side – still a shock that Massachusetts elected a Republican Senator but it is what it is!

    I figure that conservative or moderate Democrats – after seeing the gubernatorial losses in New Jersey (Corzine) and Virginia – will be 'running scared' and will be less likely to pass Health Care, and their votes will be lost and refuse the “jam it down the throats” approach.

    Difficult political calculations for them.

    Possibly – Obama needs to pivot to the Economy, Jobs, Deficit, etc or else we're looking at a Republican take-over of the House… and perhaps the Senate in November… just like 1994.