Source: Bloomberg
Source: Bloomberg

Nothing to see here, folks — keep moving. Yesterday’s stumble in the US stock market was led by a 2% decline in healthcare stocks. US healthcare providers earned monopoly rents after Obamacare took effect, and the combination of Amazon, Berkshire-Hathaway and JP Morgan propose to take them away.

The healthcare sector of the S&P 500 outperformed the main index by about 10% during the past five years, and it probably has at least 10% of relative performance to give back. The trade of the day is to sell the US healthcare index (easily done through the ETF for healthcare providers IHF) against the main index. As the healthcare providers lose their monopoly rents to competition with the likes of Amazon, that 10% of outperformance will disappear.

All the major economies remain strong.

The ADP employment report released this morning came in at 234,000 new hires in January (vs. an expected 185,000). The US employment cost index for the 4th quarter came in at 0.6%, a decline from the third quarter’s 0.7% (which means that the all-in cost of employment including benefits is rising at a 2.4% annual rate, barely above the headline rate of inflation). Subdued wage growth may not be good for consumption in the medium term, but it is very good for profits in the short term.

The Fed is going to raise interest rates, but the range of likely surprises is quite narrow. Nothing like the Bernanke “taper tantrum” of 2013 is in the offing. Asset prices are rich, but there is no reason for any drastic correction.