Coming off the holiday, the Dow Jones Industrial Index notched a nearly 700-plus point gain today, as investors took a breather from the intense selling pressure seen all last week.
The Dow dropped roughly 4.8% last week after the Federal Reserve raised its benchmark overnight lending rate, the federal funds rate, by three-quarters of a percentage point, the largest single rate hike the Fed has made since 1994.
There didn’t seem to be any big event driving the move today. Rather, I think it was a bounce or investors buying the dip after the sell-off last week. Investors are still worried about the possibility of a recession as the Fed looks poised to maintain its hawkish approach until inflation starts to show signs of flatlining. All but two of the Dow’s 30 stocks finished in the green, but there were three that really drove the Dow higher today.
Healthcare fared well
The healthcare insurance company UnitedHealth Group (NYSE: UNH) rose 6.25% today, leading the Dow after news came out that Optum, a subsidiary of UnitedHealth, is planning to acquire a health tech company called EMIS Group based in the United Kingdom. The deal is valued at $1.5 billion.
The move will supposedly enhance UnitedHealth’s relationship with the National Health Service (NHS), the public healthcare system in the United Kingdom, which could be a big positive for the business.
“Optum UK is focused on helping the NHS work better for clinicians and patients, and believes that this combination with EMIS will bring ever more advanced technology solutions and capabilities to the NHS and general practitioners to improve patient care,” Optum UK’s CEO Rob Sergeant said in a statement.
The U.S. oil producer Chevron (NYSE: CVX) was the Dow’s second-best performer today, with shares rising close to 4.2%. Not only did the price of oil rise today but the company also signed an agreement with Egypt’s state-owned gas business that will potentially result in natural gas being transported from offshore Mediterranean fields to Egypt.
The company earlier this year has discussed wanting to invest more in natural gas, although I suspect the stock’s rise today has more to do with the increasing price of oil today.
The pharmaceutical company Merck (NYSE: MRK) also performed well today, with shares gaining 4%. Merck may have benefited after the company reported positive test results from a recent trial on a new vaccine. In addition, rumors began to circulate this past weekend that the company is exploring an acquisition of Seagen (NASDAQ: SGEN), which is focused on developing cancer-curing drugs.
Is this the start of a rally?
I am not convinced that the market has bottomed yet. Today was likely investors taking a breather, and occasional bounces do happen even when stocks are generally on the decline.
While inflation could be starting to diminish, there is still no solid evidence that it has yet and the Fed is still expected to keep raising interest rates. Also, investors are worried about the economic outlook.
Of the stocks mentioned above, UnitedHealth is definitely worth a look because the acquisition moves a key business relationship forward. I wouldn’t buy Chevron and Merck on the news today but both could still be decent investments considering they operate in sectors that can do well during high inflation and as gas prices rise in Chevron’s case.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Seagen Inc. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.