Back from vacation, the Dow Jones Industrial Index posted a gain of almost 700 points today as investors took a breather from the intense selling pressure seen all last week.
The Dow Jones fell about 4.8% last week after the Federal Reserve raised its overnight lending rate, the federal funds rate, by three-quarters of a percentage point, the largest increase single rate the Fed has made since 1994.
There doesn’t seem to have been a big event behind the move today. I think it was more of a rebound or investors buying the drop after last week’s selloff. Investors are still worried about the possibility of a recession as the Fed appears set to maintain its hawkish stance until inflation begins to show signs of stagnation. All but two of the Dow’s 30 stocks finished in the green, but there were three that really lifted the Dow today.
Health did well
The health insurance company UnitedHealth Group (A H 6.25%) rose 6.25% today, leading the Dow after news that Optum, a subsidiary of UnitedHealth, is considering acquiring a UK-based health technology company called EMIS Group. The transaction is valued at $1.5 billion.
The move will supposedly improve UnitedHealth’s relationship with the National Health Service (NHS), the public healthcare system in the UK, which could be a great benefit for the company.
“Optum UK is committed to helping the NHS work better for clinicians and patients, and believes that this combination with EMIS will bring ever more advanced technological solutions and capabilities to the NHS and GPs to improve patient care” , said Optum UK CEO Rob Sergeant. in a report.
American oil producer Chevron (CLC 4.18%) was the Dow’s second-best performance today, with shares up almost 4.2%. Not only did the price of oil rise today, but the company also signed an agreement with Egypt’s state-owned gas company that will potentially see natural gas transported from offshore Mediterranean fields to Egypt.
Earlier this year, the company discussed wanting to invest more in natural gas, although I suspect the stock’s rise today has more to do with the rise in the price of oil today.
The pharmaceutical company Merck (MRK 4.03%) also performed well today, with shares gaining 4%. Merck may have benefited from the company’s release of positive test results in a recent trial of a new vaccine. Additionally, rumors started circulating last weekend that the company was considering an acquisition of seagen (NES 2.76%)which focuses on the development of anti-cancer drugs.
Is this the start of a rally?
I’m not convinced the market has bottomed out yet. Today, investors have likely taken a breather, and occasional rallies are happening even when stocks are generally down.
While inflation may start to decline, there is still no solid evidence that it has and the Fed is still expected to continue raising interest rates. In addition, investors are worried about the economic outlook.
Of the stocks mentioned above, UnitedHealth is definitely worth a look as the acquisition advances a key business relationship. I wouldn’t buy Chevron and Merck on the news today, but both could still be decent investments given that they operate in sectors that can do well in times of high inflation and when oil prices gasoline increase in the case of Chevron.