//What’s good for big tobacco . . ., by Scott Sumner

What’s good for big tobacco . . ., by Scott Sumner

Click Here to Get This Post in PDF

I’m not a fan of laws restricting tobacco use, except in government buildings. So I might be expected to look favorably on a change in FDA regulations that led to a boost in the prices of tobacco stocks.

But this particular stock market reaction leaves me concerned:

Tobacco stocks surged Wednesday after regulators threatened to pull e-cigarettes from shelves if manufacturers do not control “widespread” teen use.

Shares of Altria rose more nearly 7 percent to their best day since November, 2008. Philip Morris International increased about 3 percent. British American Tobacco shares increased nearly 6 percent to their best day since December, 2008. In London, Imperial Brands rose 3 percent. . . .

Investors welcomed the regulatory crackdown. E-cigarette sales have threatened Big Tobacco companies.

I do realize that stock market reactions can be tricky to interpret, but it seems to me that this stock market response should be viewed as a cautionary signal. While there are some health risks associated with e-cigarettes, the risks are believed to be dramatically lower than for regular cigarettes.  If tobacco stocks soared due to a perception that the FDA’s action would boost cigarette sales, then the action could very well end up harming health (despite lower e-cigarettes sales), as well as restricting consumer choice.

Again, I’m not saying that the stock market should drive policy, but I’d be interested in commenter perspectives on why stocks rose in value on this news.  Am I missing something?