Trader Talk

Financials and HMOs: What's Happening?

Late day stock-market fade, largely due to financials.

Stethescope and money

While the whole market came off its earlier highs (Dow was up almost 150 points right after the open), financials led the decline shortly after 2pm ET, when many big names went into the red, and not just JPMorgan or Citi , both down all day...regionals like Fifth Third and KeyCorp that were up earlier ended in the red.

JPM, by the way, down 5.3 percent since its earnings on Friday.

I said it this morning, I'll say it again: bank earnings estimates for 2012 look too high to me.

We will revisit this issue Friday, by which time I estimate analysts will have taken down numbers. But still not enough.

HMOs: what's up? Another strong day for HMOs, with big names with double digit gains on the year: Molina up 26 percent YTD, Amerigroup up 19 percent, and Centene up 12 percent.

What the HMO leaders have in common: strong Medicare/Medicaid component.

The baby boomers are getting old fast: "there is a big opportunity as this population is being moved to managed care over the next few years, $300 billion a year in spend on these people currently," one trader wrote to me earlier.

Also helping: a lot of states are putting their Medicaid business up for bid to managed care. Hawaii and Washington results are supposed to come this week, I am told by traders.

What about the other HMO stocks not so closely tied to Medicare/Medicaid? Health-care utilization has been low — not as many people going to the doctor due to the weak economy, and postponing medical procedures. That will likely continue, but could change if the economy picks up. Indeed, if the economy picks up appreciably, I'd expect medical procedures to pick up as well — which could be a headwind for more traditional HMOs.

We should have such problems.

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