Sideways Market with Few Catalysts Ahead: Healthcare (XLV) and Biotech Rally Fades

China Trade Deal Already Priced into the Market?

Macro Policy Issues are back into the News as US Deficit Hits Record High

The 2019 rally is fading with few clues as to what comes next. The narrative gets more complicated once a slower global economic outlook gets factored into the fundamentals. A trade deal with China is certainly needed as the market expects it. The major indices (SPY) show a sideways market with a downward bias. However the healthcare sector (XLV) took a major hit yesterday and weakness continued today down to $90.39 off Monday’s high of $93.26. Major biotech ETFs are weak today: FBT down 2.55%, IBB down 2.79%, XBI down 3.59%. Some pundits attributed the biotech losses to the resignation of FDA Commissioner Scott Gottlieb but it is hard to connect that news because of the breadth of selling today and general concerns about drug costs and recent Congressional hearings. Market action in biotech has been choppy over the past five days with weak momentum interrupted by a “head fake” rally on Friday attributed to excitement about gene therapy and dealmaking. But after a 20%+ move YTD catalyzed by major acquisitions it may be time for a rest. Just this week Biogen (BIIB) bought a small player in gene therapy Nightstar Therapeutics (NITE) for $877M. Nightstar is a clinical stage gene therapy Company developing treatments for rare inherited retinal diseases.

Here are many gene therapy companies* to track including stocks mentioned in this week’s Barron’s article, “Why Big Pharma is Diving into Gene Therapy”:

*this chart will be updated at the end of the week.

Momentum Fading Fast in a Sideways Market

 huge gains in 2019 were driven by a major market bellwether for market liquidity, small cap performance as reflected in ETFs particularly the

 up 13.65% YTD and XBI up 18.76% YTD. Both of these ETFs are 

 Three stock picks we posted in early January:

,

,

made huge moves but the daily volatility has been crazy at times forcing you to trade rather than invest for the longer term. Today showed a pick up in selling as investors raised a little cash. Many of us would be happy to take our gains YTD in light of the uncertainty ahead.