The Affordable Care Act has proven a lot harder to repeal than President Trump or the GOP Congress thought it would be - but this past week, they finally made some headway in the House.
Whether you see the repeal measure as an abomination or a long-overdue rollback, we can all agree that it will have significant effects on healthcare stocks in the weeks ahead. As we’ll discuss below, they’re already up slightly on the news.
The same can be said of Puerto Rico’s recently declared bankruptcy. It’s the largest local government debt restructuring case in our country’s history, and municipal bond markets have already started to sink on the news.
Back on the mainland, America’s largest movie studio is due to report earnings next week. So is the world’s largest online travel agency. Let’s dive in...
Big Earnings Reports: Disney and Priceline
Walt Disney Company (NYSE:DIS) is scheduled to report second quarter results Tuesday evening. Analysts are expecting earnings per share to fall slightly to $1.44. Disney has missed two of its last four EPS expectations, but an infusion of cash from Beauty and the Beast and other big releases should help it meet estimates.
Priceline.com Incorporated (NASDAQ:PCLN) is also slated to announce quarterly results Tuesday. The consensus EPS estimate for Priceline this quarter is at $8.76 - a little down from last quarter. The company has beaten all four quarterly earnings estimates in the last year. Its dominance in the online travel broker industry has propelled it to great profitability in recent years.
As you can see, Disney has traded down in the lead-up to its quarterly earnings report. Priceline has done the opposite.
Washington: Repeal and Replace, Take Two
The Republican Congress’ first attempt to repeal the Affordable Care Act went nowhere - and turned into a political debacle in the process.
But last Thursday, the House of Representatives passed a bill that dismantles most of the ACA’s major provisions. The ACA repeal measure gets rid of the taxes used to fund healthcare subsidies, the individual mandate and the anti-discrimination measure for patients with pre-existing conditions.
The bill will head to the Senate next, where it faces an uncertain fate. Many GOP senators are more ideologically moderate than President Trump or their House Freedom Caucus contemporaries. Infighting between these groups is generally seen as the main reason why the party failed to repeal the ACA on its first attempt.
The Senate has yet to commit to a timeline on passing its own version of the ACA repeal. But the market effects of this attempt have already started and should continue into next week. The iShares US Healthcare Providers (NYSE:IHF) rallied on the news.
While some healthcare companies, like hospitals, have benefited from Obamacare, others, like drugmakers, have suffered under the tax and regulatory burdens it introduced.
Puerto Rico: The Largest Local Government Bankruptcy in History
Puerto Rico’s finances have been in a downward spiral for years now. It defaulted on a bond payment back in 2015, after racking up more than $70 billion in public debt. That led President Obama to introduce a package of austerity measures called the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
The PROMESA bill slashed public spending and raised taxes in an effort to get the island’s fiscal situation under control. In many ways, the crisis has played out in a similar way to the Greek sovereign debt crisis - complete with widespread civil unrest.
And ultimately, the PROMESA’s strict cuts failed to solve the problem. Last Wednesday, the island was placed under the protection of a court-supervised debt restructuring process. It will be the largest local government bankruptcy in U.S. history.
The news flattened out the monthly performance of the municipal bond market. The Vanguard Tax-Exempt Bond (NYSE:VTEB) had made some gains earlier in the month, but the implications of Puerto Rico’s massive bankruptcy have erased any positive momentum in the fund.
Next week, the bankruptcy proceedings will start - and we’ll see whether this crisis has a long-term effect on the U.S. muni bond market.
Europe: Voting on the Fate of the EU
As we mentioned last week, the final round of France’s presidential election will take place this Sunday. Pro-EU centrist Emmanuel Macron will face off against anti-EU nationalist Marine Le Pen... and the winner will take office less than two weeks later.
Meanwhile, the next country over is having midterm elections next week. Germany’s state elections may not sound like a big deal for investors... but with the EU in such a fragile state, many European economists are eagerly watching Angela Merkel’s centrist government for any signs of weakness.
If Le Pen wins the presidency in France, or Merkel’s far-left and far-right challengers gain momentum against them, the entire EU and eurozone could be threatened. Le Pen has spoken openly about ditching the euro for the franc, and Angela Merkel will need local government support to survive the general election in September.
For now, however, European investors seem confident that Macron, Merkel and their liberal-centrist allies will pull through. The Euro Stoxx 50 index has rallied in the days leading up to these pivotal elections.
