3/22 Update after close..Relief Rally Awaiting Tomorrow’s Vote

Large Caps-mostly green with IBB up 0.54%.

Mid Caps-some strength RDUS up 3.48% SGEN up 1.74 %, ,TSRO up 4.08%.

Small caps XBI up 0.98%.

NASDAQ up 0.48%.


Biotech Stocks Sink on Trump Comments

Uncertainty Mounts for GOP Healthcare Plan-Fewer Patients Higher Costs?

Worse Day of the Year for the Market

Despite a strong opening this am the market made an abrupt reversal to the downside as investors began to worry about delays in implementation of the Trump agenda especially tax cuts which were promised following healthcare reform. Republicans have warned that there will be no massive tax cuts unless Obamacare has been repealed.The broad sell-off in NASDAQ, healthcare and biotech stocks was triggered by yet another bashing by Trump at a populist rally in Kentucky last night where he promised to tackle high drug prices following approval of the American Healthcare Act. Trump said, “medicine prices will be coming down way down”.  Although this is not news it has the same damaging effect reminding biotech investors of the possibility of competitive bidding for prescription drug prices that are part of Medicare Part D.

The market had one of its worst days of the year as many investors became concerned about the Trump political agenda starting with concerns about the healthcare bill. But the market is up over 10% since the election not just because of an improving economy but high expectations for tax reform in Washington. So given the political risk and big moves since November profit taking would be expected. Analysts and pundits have warned for months about the strength of the 2017 rally without so much as a 1% move on  daily basis.

  • Biotech stocks are among the hardest hit with the XBI down 4.88%, the IBB down 2.77% and the XLV down 0.77% . Biotech was a sea of red with few winners although small and mid caps were hit much harder.
  • Technicals have struggled despite two breakthroughs on March 2 and March 15 with the more volatile XBI. The IBB hit a 52 week high just a week ago on May 15 at $303 and is now at $290.
  • NASDAQ was down 1.83%.
  • Fidelity Select Biotechnology Portfolio (FBIOX) was down 3.92% but is up 13.67% YTD. Top five holdings are all the major large caps: AMGN,ALXN,CELG,REGN,BIIB.
  • Biogen, Inc. (BIIB) stock popped initially on news that its critical patent for Tecfidera a multiple sclerosis drug was upheld. Shares sunk later in the day but remained one of few winners.
  • The Trump budget is also an issue with promised cuts to NIH of about 20% or $5.8B and other scientific research.
  • Financials (XLF) down 2.89% and materials (XLB) down 1.89%  sector stocks were also hard hit

The next major news cycle would be the AACR Meeting (American Association for Cancer Research) on April 1.

Speculative stocks have led this rally but given today’s reversal and extensive technical damage it would be better to wait before adding new positions.

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