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As we headed into the trading day today, the Healthcare (XLV) was down 3.9% year-to-date versus the S&P 500 up 1.5%.  The best performing sector so far this year is Technology (XLK), up 17.2%.  Over the past week the XLV has seen significant relative outperformance as it is flat, while the S&P 500 is down 3.6%.   

Healthcare has been in the penalty box all year are the uncertainty of Health reform looms.  As the cloud of over healthcare dissipates there is tremendous "ALPHA" do be generated as the XLK plays catch up with the averages.

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The Followers of Research Edge's Healthcare analyst, Tom Tobin, will have noticed a clear change in tone since the beginning of this week about the prospects for Healthcare reform.  Today's Healthcare's Early look is no exception:


"A Trillion Dollars is a large amount of money" -Tom Daschle

Obama has to be a little embarrassed this morning with Bloomberg running a story about the problems with Organizing for America and its ability to bring grass-roots pressure to help move his Health Reform agenda.  Apparently the lack of details and diversity of objectives among participants is causing some problems.  Without the same kind of energy Obama's election campaign harnessed for his Presidential bid, his grass-roots pressure on the process appears to be an empty threat.  Two polls released this morning find that while Obama enjoys a 63% an overall approval rating, on Healthcare his approval drops to 44%.  On the margin, the odds of major reform happening have to be dropping at this point. 

Healthcare looked great with 80% of stocks up on the day on solid volume.  Despite the 10 year backing off and TIPS down, balance sheets continue to matter.  The FOMC meeting should diminish balance sheet as a factor given the low reading on the CPI number and signals from Fed Officials that rates will remain low for the time being.   USD has not been a factor with suggests the market expects USD stability.

Managed Care and Hospitals showed a second day of divergence.  The next major event for Managed Care is the Senate Finance bill.  According to one person close to the topic, Public Plan has even odds of being included.  But given the lack of an effective grass roots campaign and a high price tag, even if a Public Plan is included, odds are high it will be dropped before the final package finalized.

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What does this mean for Healthcare stocks?  Looking at valuations suggests there is some pent up multiple expansion in the group.

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Howard Penney

Managing Director