Large Cap drug stocks have rallied over the past week as the market was up overall but also because the Euro was up 3% over the past 4 days.
Is the correlation there? Well look at these charts tracking drug multinationals and the Euro through the ETF FXE. Pfizer (PFE) and Abbott (ABT) track well over 3 months.
Euro Shares, FXE Fund Quote – (NASDAQ) FXE, Euro Shares Fund Price
Over six months the Euro (FXE) is down about 18% and Pfizer(PFE) correlates the best more than 95% while Abbott and the healthcare ETF XLV less so . The correlation is due not only to currency translation of sales and earnings but also concerns about weak sales in the Euro sector. Another example BDX is down 10% YTD and the FXE is down 14% YTD.Of course other factors come into play like analyst upgrades, clinical news,or the perception that large cap drug stocks are a value play with safe dividends. But as a general rule of thumb if the Euro is down then multinationals should be weak due to their proportional European Revenues. Currency is more important than ever in a connected global market.