NEW YORK (CNNMoney) — A U.S. Supreme Court announcement upholding President Obama’s health care reform law sparked a deep sell-off on Wall Street Thursday, June 28th, as investors fear health care costs could further weaken economic growth.
Investors are concerned that the so-called individual mandate requiring all Americans to purchase health insurance might act like an additional tax, giving consumers another reason to cut back on spending.
There are also worries that businesses will be forced to spend more on health care and in turn will spend less on bigger ticket items that power the U.S. and global economies.
“Businesses now absolutely have to plan and bake in expenses associated with this,” said Paul Powers, head of trading at Raymond James. “Before today, the thinking was that the law would be dismantled.”
The Supreme Court ruling is also viewed as a big win for President Obama. Many on Wall Street see any win for Obama as a loss for the markets. “It’s no mystery that the market doesn’t love Obama. This is a feather in his cap,” said Powers. “Investors don’t want to see him go into the election with the wind at his back.”
Health care stocks were sharply divided following the ruling. Insurers Aetna, WellPoint and Humana dropped between 2% to 6%. Hospitals, including Community Health Systems and HCA rose between 8% to 9%.
Fears of a global slowdown also sparked a steep sell-off in oil prices, which fell more than 2%.
The Dow Jones industrial average tumbled 129 points, or 1%. The S&P 500 fell 16 points, or 1.2%. The Nasdaq sank 43 points, or 1.5%.
The Supreme Court ruling overshadowed other sources of investor concern, including a two-day European summit, where leaders are faced with the daunting task of coming up with a concrete solution to the continent’s debt crisis.
“The entire Street is focused on [health care] right now,” said Joe Saluzzi, co-head of trading at Themis Trading.
The European summit isn’t expected to yield any concrete solutions, despite deteriorating situations in Spain and Italy. Spain’s stratospheric borrowing costs are threatening to drive the country from private markets.
Italy may be in similar trouble. Borrowing costs have been steadily rising, and while the yield on the 10-year bond hasn’t yet reached 7% — it now hovers above 6.2%. Early Thursday, the government auctioned €5.4 billion for 5- and 10-year bonds pushing yields up slightly.
Meanwhile, bank stocks remained under pressure after The New York Times reported that JPMorgan’s, trading losses at the firm could reach $9 billion. Shares of JPMorgan fell 4%, while Bank of America, Morgan Stanley, and Citigroup dropped between 2% and 4% Thursday.
U.S. stocks closed with solid gains Wednesday, following strong reports on durable goods orders and housing.
World markets: European stocks closed down but off session lows. Britain’s FTSE 100 shed 0.6%, while the DAX in Germany dropped 1.3% and France’s CAC 40 fell 0.4%.
Asian markets ended mixed. The Shanghai Composite lost 1% and the Hang Seng in Hong Kong slid 0.8%, while Japan’s Nikkei gained 1.7%.
Economy: On the domestic front, the Labor Department reported Thursday morning that weekly jobless claims dropped 6,000 to 386,000, slightly more than expected. And the final estimate of first-quarter U.S. GDP growth was in line with expectations at 1.9%.
Companies: Shares of News Corp. dropped after the company’s board unanimously approved separating its entertainment side from publishing. Rupert Murdoch will chair both companies.
Family Dollar’s stock sank after the operator of discount chains reported earnings and revenue that fell short of expectations, and reaffirmed its guidance.
Nike and Research In Motion will report their quarterly earnings after the closing bell.
Nike is expected to post earnings of $1.37 a share on $6.5 billion in revenue. Research In Motion is expected to report a loss of one cent per share on $3.1 billion in revenue, which would be a 37% drop versus last year.
Currencies and commodities: The dollar rose against the euro and British pound, but fell against the Japanese yen.
Oil for August delivery slid 64 cents to $79.62 a barrel.
Gold futures for August delivery fell $23.10 to $1,555.20 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 1.59% from 1.62% late Wednesday.