Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Health Care Reform

Health care reform is particularly compelling to look at in the context of the Congressional Effect because it is such a regulated portion of our economy and because reform was tried and failed in 1993 and succeeded in 2010 with predictable capital market impacts each time.

At the end of 2007, if you had followed election politics, you would have seen that the Democrats were rising in the polls and, more specifically, that health care reform was an issue that both Senator Obama and Senator Clinton agreed on as a priority. Even if you estimated the Democrats' chance of winning the presidency and control of both chambers of Congress at only 50 percent, you could have reasonably viewed health care as a sector to underweight in your portfolio because it was more likely than others to wind up in Congress's crosshairs. Let's review briefly the health care industry, starting in modern times.

As we saw earlier, in late 1992, the new President-elect Clinton began pushing for comprehensive health care reform, and the health care companies plunged in value. The insurance companies, to create public pressure against the bill, planted seeds of doubt about the wisdom of the proposals with the “Harry & Louise” commercials. In these commercials, sponsored by the medium-sized health insurance companies, an everyday couple, played by some actors, wondered aloud what was going to happen to their health care protection with the new 1993 law. It went down to defeat. In the wake of ...