Broad Market Rallies Despite Currency Headwinds

• Healthcare (XLV) was down 2.11% yesterday but stabilized today at $129 handle.
• MedTech (IHI) is up 2.8%. a must have sector in your  healthcare portfolio.
• Small Cap Biotech very strong with (XBI) up 4%.

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HealthCare and Biotech shares have been strong over the past 30 days as investors have sought trades away from macro and earnings concerns. In times of volatility portfolio strategists may re-balance positions toward defensive healthcare stocks. That is why portfolios should have positions in stocks like United Health (UNH) and large cap biopharmaceuticals. Earnings will start rolling out this week so stay tuned.

Drug Pricing Legislation Looms

Emerging crosscurrent threat to biopharma stocks is the Democrats’ proposed Bill to allow Medicare to negotiate drug prices. This issue has been around for quite some time and it looks like a vote is coming up now that Sen. Manchin (D) WVA has agreed to support the measure. Onerous provisions could impact innovation.This may account for weakness in the sector recently.  Expect an update this Wednesday on details of the Senate  bill.

Watch Currency Headwinds for Earnings.

There was a broad sell-off in large cap biopharmaceuticals yesterday and we suspect it was related to a potential hit on earnings from a strong dollar (see JNJ).The broad market rallied today but healthcare stocks lagged. Also the backdrop of drug pricing legislation creates uncertainty over the sector. The impact will affect some companies harder depending on how Congress targets the drug. Large caps were mixed today with weakness in ABBV, BMY, GSK.

Last Friday United Health reported solid 19% earnings growth and it remains a core holding in our portfolio.

Next up on earnings this week will be : 7/20-ABT,  BIIB; 7/21 – ISRG and many others next week. JNJ was flat to down Tuesday providing a good preview of what’s to come. A weakening Euro is the issue.

Johnson & Johnson (JNJ) beats on earnings and profits but stock is down. Despite a 35 increase in revenue earnings fell to $4.81B or $1.80 per share from $6.28 M or $2.35 per share a year ago. Operational growth was 8%. Full year EPS guidance was cut from $10.15 to $10.35 to $10.00 to $10.10 range. JNJ is a broadly diversified consumer healthcare, medical device and biopharmaceutical Company.

JNJ pharmaceutical growth was 6.75% to $13.3B for Q2 and MedTech Revenues were down 1.1% $6.898B, although declines were current related. REMICDE and IMBRUVICA revenues declined. Sales of cancer drug Darzalex were %1.99B beating estimates of $1.84B.Contact lens and vision product sales grew. A restructuring of the Company is expected by 2023 spinning out its consumer health business.

The stocks , funds and ETFs below provide a good model. of Performance YTD. Some takeaways:

• As noted in our recent posts small caps are beginning to show life with the XBI up 25% over one month.
• Individual stocks are more important to your portfolio than ETFs.

Recent prices as of 7/16. Long IHI, JNJ, MRK PRHSX,UNH, XBI

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