Risks Rising for Rally: Political Rhetoric Tempers Bulls

Risks Rising for Healthcare Sector As Harsh Political Rhetoric Returns

  • Trump returns to drug pricing attacks. Healthcare sector lags.
  • Opioid crisis blames drug distribution companies for easy access.
  • Sector on hold awaiting Q3 earnings: XLV down 0.44% today near its 52 week high.

The early rally in biotech and drug stocks reversed on the 10 am Trump news conference with strong populist rhetoric on “out of control” high drug prices and companies “getting away with murder”. We have seen this drama before but political concerns about drug stocks have always faded over time. But with biotech stocks up 30-40%+ YTD and smooth sailing up until now, this round of slamming may trigger profit taking. The XBI hit $88.50 early today before reversing and stabilizing at $86.92. Trump’s actions last week on the ACA that cut off payments to health insurance companies raises more concerns as it disrupts the healthcare exchanges. Some insurance stocks took a hit on Friday.  Jim Cramer said today on on CNBC that its almost as if Trump is calling for a market rotation out of healthcare stocks into industrial stocks. This all brings back fears that Medicare negotiation of drug prices will affect market sentiment. Or if you are an optimist the disruption will bring some bipartisan solution to healthcare reform.

Last week we covered the big rotation into microcap biotech stocks. This is an important trend to watch as we move toward year end because it shows the appetite for speculation. The IWC was down a tad today $95.22 still near its 52 week highs. CNCR head slightly in the green at $26.84.

Looking across the Rayno Biopharmaceutical Portfolio  here are some movers:

ETFS were about flat : IBB and XBI with stock distribution recently.

bluebird bio (BLUE) ws up 8.8% to $143.30 on an Evercore ISI upgrade.

Bristol-Myers Squibb (BMY) was down 2.5% to $63.65 on a Jeffries downgrade. Other large caps were mixed but Abbvie (ABBV) held.

Overall wee see more red screen with increasing volatility on higher volumes today.

Overall we recommended a balanced portfolio approach with core positions in ETFs and selected stock picking. Trading opportunities abound in smaller cap biotech stocks if you are diligent and follow clinical milestones but specific trades are hard to call. We have had a great run in 2017 so this is not the time to overweight your portfolio. We have more room to run but today’s news calls for some caution. An SITC Immunotherapy Meeting in early November should provide positive clinical news in oncology.

Q3 earnings should help allay concerns because market gains have been driven primarily by global growth, good earnings and breakthrough technologies such as CAR-T,immuno-oncology targets and gene therapy.

NOTE: we are traveling over the next two weeks and may not provide timely market updates.

 

 

 

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