Rayno Biobeat #4: Sector Shift Underway But What’s Next For Biotech?

Sector Shift  in a Broad Based Rally

Money flows show investors moving to a wide variety of equities to new highs as biotech stalls. This also could indicate a major shift from bonds to stocks with interest rates rising.

DOW Crosses 19,000! As of mid-day trading.

The so-called “Trump biotech” rally does not mean that Trump has said something favorable about NIH funding or thinks biotech blockbuster drugs are “amazing and excellent”. Investors have simply decided that next year will be great for all kinds of equities because more growth will come from fiscal stimulus, tax cuts and less regulation. Moreover cash trapped abroad can be moved home to U.S companies stimulating new investment or maybe just stock buybacks and more dividends. Optimism rules in a broad based momentum market but it is sentiment driven not data nor policy driven.

The biotech rally stalled last week when the IBB hit the $290 area but with no technical breakouts. A biotech sell-off is underway as of 1P EST. The IBB at ~$282 is well short of September highs of $300 and still down YTD. The XBI is doing a tad better at $66.36 and just short of its September highs of $68.75. As the broad rally continues analysts are sifting through the President-elect policies placing bets on new sectors that should outperform healthcare in 2017. Although healthcare and biotech have the built-in growth factors of patients, new products and procedures the sector also has the challenging issues of the ACA and drug pricing. We have no idea what Trump policies mean for healthcare stocks unless ACA changes will be major.

Yesterday energy was a case in point as it was the leading sector up 2.32% and 4.3% over five days. Crude was up 4.14 % maybe because OPEC will hold the line on volume or maybe it is part of the “Trump trade ” of a more aggressive energy policy. The XLE is up 20.7% YTD after a year of declines in 2015.

The financial sector (XLF) also ran up with biotech since November 7 up about 10% for the period but still down 6.67% YTD.

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Disclosure: long ABBV, BMY, GILD.

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Chee Hin Teh 4 years ago Member's comment

Thanks sir for sharing

Chee Hin Teh 4 years ago Member's comment

thanks for sharing