UnitedHeath is down 20% this morning.
Medicare Advantage customers were extra-whiny in Q1, what with all the Bird Flu and Measles and regular Flu and still Covid and now weight-loss medications so NOW UNH regrets relentlessly pushing Medicare Advantage plans on every oldster with a pulse. 50M people are covered under UNH and, since it’s a Dow component, the $118 drop this morning is costing the Dow 1,000 points but the Dow is only down 555 points (7:45 am) so it would be up 445 without the UNH disaster but the other indexes have been falling – sucked up in the Dow’s mighty wake – or whirlpool – or whatever you call it when something dives and takes other things with it…
The Osmonds are right! But what if the other apples are also kind of bad? Yesterday’s sell-off was very depressing as Powell did nowhere near enough to reassure the markets. In our first big week of earnings, EPS growth stands at 7.3% and Revenue Growth is coming in at 4.3% but that’s about HALF of what was expected from Q1 projections (given during last Qs reports) and, of course, this is all pre-Trade War data.
Health Care had been leading us with 35.3% earnings growth and UNH was not really that bad but they are more Health INSURANCE. IT is up 15% and Utilities are up 10.4% so far. Energy is looking down 13.7% on lower prices, Materials are down 10.8% on slowing growth and Consumer Staples are down 8% as Consumers are running out of money. Banking, as always, has been doing well so far.
Powell addressed the Economic Club of Chicago yesterday, emphasizing the Fed’s cautious stance on adjusting interest rates amid economic uncertainties stemming from recent tariff implementations. The Fed Chair acknowledged that the tariffs could lead to higher inflation and slower growth, complicating the Fed’s dual mandate of maintaining stable prices and maximum employment. He stated that the Fed would wait for more clarity on the economic impact of these policies before making any changes to interest rates and the markets reacted very negatively, with the S&P 500 dropping 2.2% and the Nasdaq falling 3.1% for the day.
Investors were VERY disappointed by the Fed’s reluctance to signal imminent rate cuts, especially amid escalating trade tensions and market volatility. In response to Powell’s comments, President Trump criticized the Fed Chair on his social media platform, Truth Social, urging him to cut interest rates and accusing him of playing politics:
Trump’s public criticism of Powell (despite being 75% BS) adds to the market’s uncertainty, as it underscores the tension between the administration’s trade policies and the Fed’s monetary policy decisions. This dynamic contributes to investor concerns about the potential for policy missteps and their impact on economic stability which does NOT encourage people to go long in the market OR to invest in US debt.
In theory, Trump is stuck with Powell until next May and it’s never good when the President calls the head of the Reserve Bank incompetent but, fortunately, that’s the least stupid thing Trump has done this week – and we are stuck with him for 3 more years and 8 more months – Yipee!
Meanwhile, “Long Gold” has, for the first time since March of 2023, displaced the Magnificent 7 as the top trade in the markets with the Mag 7 falling from 57% to 24% since Feb 1st. Long EU Stocks fell from 24% to 10% and even China Tech fell out of favor which reinforces my theory that the money coming out of US Equities has nowhere else to go (gold can only accommodate so much) – so it will run back into our markets at the slightest excuse.
IF Trump can actually close some trade deals over the next 30 days and IF earnings are not too terrible – THEN we should get a bit of a bounce in the US Markets. UNH down 20% is an over-reaction, the reality is they revised 2025 earnings to $26.25, down 11.7% from $29.75 but, at $467/share – that’s 17.8x earnings and last year this high-growth company traded at 30x earning.
UNH reported $109.6 BILLION in Revenues for Q1 (up 9.8% for the year) driven by 780,000 new Medicare Advantage Members and Optum Health’s expansion. Their Medical Care Ratio (MCR) rose to 84.8% from 84.3% due to a heavy flu season, which disproportionately impacts seniors. While short-term bad, of course, it also gives UNH a reason to raise rates for all 50M customers – and you know they love that!
Overall, it’s a great time to set up a UNH trade though it may be a bit of a falling knife ahead of the downgrade police but $460 should be close to the bottom. As a new trade idea, I would go with:
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- Sell 5 UNH 2027 $400 puts for $40 ($20,000)
- Buy 10 UNH 2027 $450 calls for $105 ($105,000)
- Sell 10 UNH 2027 $550 calls for $70 ($70,000)
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That’s net $15,000 on the $100,000 spread with $85,000 (566%) upside potential for a company making $25Bn in 2025 – up from $14.5Bn in 2024 – AFTER the lowered guidance!
Markets are closed for Good Friday tomorrow and we are very well-hedged into the weekend – just in case.
Have a great weekend,
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- Phil
