Forgive the cliche, but it's true: The market hates uncertainty. That's why the outlook for health cares stocks -- in the short term at least -- is just fine, regardless of whether sweeping health care legislation passes or fails this weekend. The sector, depressed in part by the overhang of regulatory risk, is historically cheap right now, setting it up for a relief rally no matter how the vote swings.

What the passage of health care reform could do to the one-year-old bull market is another matter, says Ed Yardeni, president of Yardeni Research, who called the S&P 500's ($INX) intraday bottom last year. "If [health care reform is] enacted...most institutional investors most likely believe that it will be bearish for the market," Yardeni said in a note to clients. "Though I certainly agree that it won't be bullish for the market... I wouldn't be surprised if health care stocks rally since they've probably largely discounted the bad news."

At least one would hope share prices already reflect a bad outcome for the industry: The health care sector is as cheap now relative to the broader market as it was when the Clinton administration took a stab at reform back 1993, Yardeni notes. Meanwhile, the sector has shown surprising resilience in the face of regulatory risk and the shift to more pro-cyclical sectors such as financials and tech stocks.

A Vast Playing Field

True, the health care sector has underperformed the broader market throughout the one-year-old bull market -- but then as a defensive play it would have lagged behind, anyway. Interestingly, even with the overhang of regulatory uncertainty, the sector's performance hasn't been all that bad. Of the S&P 500's ten major sectors, health care gained more than 32% over the last year, according to Capital IQ. That trails the broader market by wide margin, but still beats consumer staples, energy, utilities and telecommunications stocks.

Furthermore, the health care sector is vast, leaving plenty of room for names that should do well regardless of the outcome. "Clear winners of health care reform passing would be the managed Medicaid plans," wrote Collins Stewart analyst Brian Wright, signaling out Amerigroup (AGP), Centene (CNC), Molina Healthcare (MOH) and WellCare Health Plans (WCG).

"Even if health care reform fails at the federal level, current state budget pressures will likely auger in more managed Medicaid involvement to help contain the cost of the Age, Blind or Disabled (ABD) Medicaid population that accounts for about 25% of Medicaid enrollment and about 70% of Medicaid costs," Wright said.

As for the impact on the broader market farther down the road, well, that's another story. "ObamaCare could depress corporate earnings, which could then also depress the market's [price/earnings] multiple," Yardeni writes. And although the legislation will immediately increase taxes, spending won't begin for a few years. "That could depress the economy and earnings," says Yardeni.