Walgreens Stocks

Walgreens Drags Dow Lower Just Days After Replacing GE

The Dow is down sharply early Thursday with the headlines blaming lingering concerns over an escalating trade war between the United States and its major trading partners, China and the European Union for the triple-digit, 0.48% loss.

However, if you dig deeper into the cause of the sell-off and the size of the move, you may want to place the blame on the performance of Walgreens.

Just days after Walgreens (WBA) replaced General Electric Company (GE) in the Dow Jones Industrial Average after the close on Monday, it is the biggest drag on the stock market.

The catalyst behind the weakness in Walgreens, or for that matter the health-care sector today is the news that Amazon is acquiring online pharmacy PillPack in a deal that could shake up the prescription drug industry.

Although both Amazon and PillPack did not disclose the details of the pact, traders expect the move to be completed during the second half of the year.

According to Walgreens Boots Alliance CEO Stefano Pessina, “Yes, it’s a declaration of intent from Amazon.”

This is significant to the health-care industry because it may lead to lower prices for pharmaceutical prescriptions over the long-run. On the surface, the deal is a major sign that Amazon is serious about its intent to move further into the health-care industry.

Analysts are saying that the move threatens to remove one of the few distinguishing factors pharmacy chains have relied on to fend off Amazon, the sale of prescription drugs.

Shares of Walgreens, CVS Health and Rite Aid all tanked after the announcement along with drug distributors Cardinal Health, AmerisourceBergen and McKesson.

Not only is the prescription of the three major retails being threatened, but also their so-called “front of store” sales, which have already suffered from weaker sales due to the impact of Amazon’s main business.

The move by Amazon is important because it represents an aggressive attack on the status quo of the healthcare system in the U.S., which could eventually lead to lower prices for consumers across the board.

Earlier in the year, Amazon announced an alliance with Berkshire Hathaway and JPMorgan Chase to form their own healthcare insurance provider to help their companies get better control over employee and company healthcare costs. Today’s acquisition of PillPack may be part of the retail giant’s overall play to lower healthcare costs.

The weakness in the healthcare sector today is just another concern for investors who are already facing challenges this week from escalating trade war tensions.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.