Healthcare stocks bounced back from Friday’s big sell-off but analysts remained concerned that government healthcare schemes may limit expensive cardiovascular and orthopedic treatments.
Hospital manager Tenet Healthcare jumped 12.4 per cent to $4.70, reversing nearly all of its losses from Friday, when Wells Fargo analysts had said 11 different states will study heart, knee and spine cases before agreeing to pay for hospital stays and treatments.
Nuvasive, which manufactures equipment for spinal surgery, popped 13.3 per cent to $14.53, also recovering all of Friday’s losses.
St Jude Medical, Medtronic and Boston Scientific rose 3.9 per cent to $37.21, 4 per cent to $35.98 and 1.8 per cent to $5.60, respectively, but were still several percentage points lower than Friday’s opening price.
Analysts were struggling to understand the implications of a pilot scheme, announced in November by the Centre for Medicare and Medicaid Services, to conduct checks before authorising some treatments in states with high levels of improper payments.
Larry Biegelsen, Wells Fargo’s hospital analyst, said all 11 states involved in the pilot would follow the example of Florida and begin pre-auditing a wide range of treatments, forcing hospital management companies to cut back on procedures to avoid falling foul off the audit schemes.
“This will likely reduce procedure volume because hospitals will begin making sure that every patient meets the coverage criteria,” Mr Biegelsen told clients.
But a Credit Suisse note, arguing that the procedures in question accounted for only 1 per cent of hospital revenues helped Tenet recover losses.
The CMS also refused to confirm what shape the pilot scheme would take in states other than Florida, leading other analysts to conclude the sell-off in device makers was overdone.
Elsewhere, US stocks were broadly positive with the S&P 500 closing up 1 per cent to 1,257.08. The benchmark US index had been us as much as 1.5 per cent before news the Standard and Poor’s is reviewing its sovereign rating on 6 eurozone sovereigns including Germany, knocked stocks.
The Dow Jones Industrial Average closed up 0.7 per cent to 12,097.83.19 and the Nasdaq Composite index gained 1.1 per cent to 2,655.76.
“Positive news flow from Europe is driving stocks,” said Paul Zemsky, chief investment officer of multi asset strategies at ING.
“But the S&P 500 is seeing resistance at the 200-day moving average above 1,260. If you were long from the November lows, it’s a good place to take profit and, if you have money on the sidelines, it seems a bit high to be initiating new long positions,” he added.
Bank stocks led the rally with the financial sector of the S&P 500 handily outperforming all other sectors with a 2.1 per cent rise.
Morgan Stanley climbed 6.8 per cent to $16.57. New York-based investment bank Jefferies continued to rally, rising 4 per cent to $12.90.
As recently as two weeks ago, the bank had hit year lows of $9.50 on concern about its exposures to European sovereign debt and short-term funding needs.
Citigroup climbed 5.9 per cent to $29.83.
Goldman Sachs financial services analyst Richard Ramsden beat the drum for US banks ahead of a Goldman banking conference this week.
“Fundamentals don’t appear nearly as bad as valuations imply,” he told clients, while acknowledging that hedge funds significantly reduced their weightings to financials in the third quarter.
Newfield Exploration fell 3.4 per cent to $44.03 as investors reacted guardedly to its agreement to supply Tesoro Corporation’s Salt Lake City refinery with 18,000 barrels of oil per day from 2013 from planned growth in the Uinta Basin.
“Management had been flagging this announcement for a week,” said Subash Chandra, an oil analyst at Jefferies, “but when it came it was underwhelming. There’s no revenue till 2013, and we’re still waiting for updates from new fields within the basin.”
Time Warner fell 1.7 per cent to $62.71 on mixed reaction to its plans to make films available for consumers to watch on any platform through a cloud verification service.
Gannett climbed 10.2 per cent to $13.13 after Lazard analysts recommended clients buy the stock, tipping the media company to raise its dividend soon.
“Cloud” software provider Salesforce.com was the main beneficiary of a Standard and Poor’s note forecasting a round of acquisitions in the software industry. Its shares rose 4.5 per cent to $125.01.
MetLife rose 3.7 per cent to $32.92. The largest US life insurer said 2012 earnings may reach $5.20 a share compared with the average analyst estimate of $5.08 a share.
Staples rallied 5.6 per cent to $15.13 after positive coverage over the weekend, which suggested that the stock could rise as high as $22 in the next year if the economy improves and companies spend more on office supplies.