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Weak Trading Day—But Stronger Than it Seems

It's a measure of how strong stocks have been recently, that a modestly weak day seems...well, weaker than it really is.

No surprise that the small-cap Russell 2000, down 2.5 percent, is the downside leader of the major indices; since the current leg of the market rally began on September 1, the Russell has far outperformed, up 31 percent vs. the up 22 percent of the S&P 500.

By the way, it's a good day to highlight the differences between the Dow and the S&P.

Besides being a price-weighted index, the Dow Industrials actually has a pretty high level of consumer stocks which are not down nearly as much as financials and commodity stocks: McDonald's , Johnson & Johnson , Procter & Gamble , Kraft , Coke , and Disney , alone with low-beta pharmaceuticals (Pfizer and Merck ) and telecom stocks (AT&T and Verizon ).

While many on the Street are blaming today's weak showing on disappointment with financial earnings, the fact is that the weakest sub-sectors are in healthcare, with HMOs down 3 percent and hospitals down 3 to 4 percent.

They are getting caught up in state budgetary politics. There are proposals in Texas to cut Medicaid reimbursement by up to 10 percent.

Expect to see more of this. Remember that last year there were proposals to cut rates in Florida and California, but the cuts were much less onerous than expected. Initial discussions were calling for cuts of as much as 10 percent in those states, but in the end analysts note the average Medicaid rate increase was about zero.

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