Biotech in a Doldrums: Rallies Interrupted by Geopolitics, Trump Agenda and Flight to Safety

  • Biotech Doldrums: Nothing to Entice Buyers
  • Trump Agenda for Tax Reform and Deregulation Stalls
  • Geopolitical News Curbs Market Sentiment

Recent geopolitical news has created a backdrop that has discouraged investors in biotech who were already risk averse from drug pricing issues. There has been little momentum since mid-March with choppy sluggish trading. Drug stocks have dodged the Trump tweet threats only to lay back mired in a holding pattern.

But the biotech sector was a market leader in the first quarter up 10-17% depending on the index or ETF. And both the IBB and XBI lead NASDAQ and the S&P which is up 5% YTD. The XLV Healthcare SPDR is also up 7.48% beating the S&P.

  • Technicals are weak with failed rallies at tops. The XBI is the best indicator of buyer enthusiasm and sold off at the March top.The IBB failed two breakthrough tops at the $300 level also hit in September 2016. Keep in mind we are still in a bear market recovering from lows of $250 on the IBB hit in February 2016. The XBI did a tad better hitting 52 week highs of  $72.58 in March 2017.
  • More positive clinical news is needed to spark investor  interest such as we saw in March with Vertex Pharmaceuticals (VRTX). M&A is also a major driver in the sector but deals have not been a catalyst as rumored in 2017. We have been waiting a long time for a Gilead Sciences (GILD) deal.
  • By the end of April we will have earnings reports that give us a better trajectory for top line growth in large and mid-caps for 2017. Many strategists still favor healthcare for growth in an aging bull market.
  • Many of our picks are doing well in 2017: BLUE up 37%, HOLX up 5.9%, RHHBY up 12.8%, XBI up 12.8%. Sequencing is still hot with Illumina (ILMN) up 36% YTD.

Trading has been good with a lot of volatility but sector strength is weakening. Today was not good with a red screen day. But given that biotech stocks are outperforming the market, a balanced portfolio should be held.

Disclosure long: FBIOX, HOLX, RHHBY…LABD for hedge trade.

 

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