U.S. stocks open higher but close lower; Nasdaq down 0.5%, S&P 500 down 0.27%, Dow declines by 1 point.

U.S. stocks open higher but close lower; Nasdaq down 0.5%, S&P 500 down 0.27%, Dow declines by 1 point.

U.S. stocks opened higher on Wednesday, driven by investor optimism that trade tensions might ease. The Nasdaq Composite fell 0.5%, the S&P 500 dropped 0.27%, and the Dow Jones Industrial Average declined by 1 point. This volatility reflects ongoing uncertainty about the impact of tariffs and trade policies on the economy [1].

The morning rally was supported by optimism that the Trump administration might walk back its tariff announcements, a sentiment that has been prevalent since the spring. However, the market's momentum may be limited this summer as stocks have already priced in a lot of potential good news concerning tariffs [1]. The lackluster reaction to last week's trade court ruling, which found many of Trump's tariffs illegal, further underscores this point. While the ruling did not send stocks soaring, the market climbed 1.9% last week, partly due to earnings reports like Nvidia's NVDA, which exceeded expectations [1].

Healthcare stocks, however, have lagged behind the broader market rally. The sector faces significant headwinds from policy concerns, including President Trump's intention to lower U.S. drug prices. UnitedHealth Group (UNH), the sector's largest drag, has dropped 46% since April 8, contributing to the sector's underperformance. Healthcare stocks are trading at an 11% discount to Morningstar's estimates of the sector's fair value, making them one of the cheapest sectors in the market [2].

Despite the sector's challenges, Morningstar analysts identify opportunities among drugmakers such as Merck (MRK) and Pfizer (PFE), both rated 5 stars, and Novo Nordisk (NVO) and Bristol-Myers Squibb (BMY), both rated 4 stars. However, the policy uncertainty hanging over the sector may weigh on it in the near term [2].

The market's resilience in the face of trade policy gyrations and the potential for tariff implementation highlights the ongoing challenges investors face. Strategists caution that while the market could move higher, it is likely to remain range-bound at 5,500-6,000 points for the next month or so, given the uncertainty around tariffs [1].

References:
[1] https://www.morningstar.co.uk/uk/news/265760/has-the-us-stock-market-reached-peak-optimism-on-tariffs.aspx
[2] https://www.morningstar.com/markets/healthcare-stocks-got-left-behind-market-rally-are-they-buy