or investors in health care stocks, Tuesday's elections results were just what the doctor ordered.
No matter who becomes president, the narrow Republican victory in the House of Representatives and the nearly even Democratic-Republican split in the Senate mean that Washington is probably looking at several years of gridlock.
''With stalemate, you are not going to get any radical reforms,'' said Linda Miller, manager of the John Hancock Health Sciences fund. More precisely, stalemate means Congress is not likely to approve price controls on drugs, the one outcome Wall Street worried about coming into this election season.
Drug stocks rose as soon as the market opened yesterday, with household names like Merck and Eli Lilly registering solid gains. The big HMO stocks got a lift also, on the theory that a Republican Congress would be less likely to pass a tough patients' bill of rights. Vice President Al Gore was harshly critical of both drug companies and HMOs throughout his campaign.
For health care investors, the post-election rally was just one more piece of good news in a year that has brought almost nothing but good news. No matter how you measure it, 2000 has been a terrific year for health care stocks.
The Standard & Poor's drug index is up 30 percent for the year. The Amex biotech index is up more than 90 percent. The big health care mutual funds at Fidelity, Vanguard, and Putnam are up anywhere from 35 percent to 50 percent. In a year when practically every other type of investment has been a disappointment, health care has delivered, and then some.
In fact, the woes of the rest of the market have contributed to health care's success. ''What you are seeing is a flight to safety,'' said Bill Berger, a money manager with Vaughan Nelson in Houston.
In 1999, when technology stocks were promising unlimited growth, the steady 12 percent to 15 percent earnings growth of drug stocks looked rather dull by comparison. That was then. This year, with technology looking more and more shaky, the predictability of the drug stocks looks positively alluring.
Like Switzerland in war torn Europe, the drug companies promise shelter from the storm. They do well in practically any economic environment. Throw in a string of mergers and some stock-buyback programs, and you have a sector with a powerful appeal.
''Where else are you going to go this year?'' asked Phil Fine, a portfolio manager with Loomis Sayles who has been building up his health care position in recent months.
Drugs are a big piece of the health care market. But they are not the only piece that has done well this year. Biotechnology has had a banner year, largely on optimism fueled by the human genome project.
The vast majority of biotech companies don't have earnings yet. In that respect, they are a little like the dot-coms. Still, the fact that they are part of a bona fide scientific revolution has impressed investors, at least until now.
Finally, there are the health services companies, mainly hospitals and HMOs. These stocks have been disasters for the past few years, yet they too have participated in the year 2000 rally. Shares in UnitedHealth Group, a large HMO based in Minnesota, are up 111 percent year-to-date. HCA, a big hospital chain based in Tennessee, is up 40 percent this year.
The HMOs are benefiting from the higher premiums they have passed on to subscribers. The hospitals have been helped by growing admissions and better prices.
''The easy money has been made in health care,'' said Bill Berger of Vaughan Nelson. But he and all the other money managers we spoke with are convinced the good times are not over yet.
''If the rest of the stock market stays choppy, investors will still seek out the safety of the large drug stocks,'' said Margery Parker, manager of Putnam's $8 billion Health Sciences Trust fund. Most analysts expect the drug companies to increase earnings by roughly 15 percent next year. For the market as a whole, earnings are expected to rise less than 10 percent.
Valuations for health care stocks are considerably higher than they were in the spring, but portfolio managers say the stock prices are not out of line by historical standards. ''Bull markets in growth stocks don't end just because of valuation concerns,'' said Phil Fine.
What would it take to trip up medical stocks? Fine suggests it would take some genuinely bad news: earnings disappointments, failures in the laboratory, or stiff new government regulations.
With Washington evenly divided between Republicans and Democrats, chances are slim that those new regulations will be forthcoming.
Two cheers for democracy.
Steven Syre (617-929-2918) and Charles Stein (617-929-2922) can be reached at boscap@globe.com.
