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.

Own any semiconductor stocks? You should because the SMH Market Vectors Semiconductor ETF is up 32.65% YTD. This is another sector that took off after BREXIT on July 1.

The normally slow-moving industrials have gained a lot of focus from investors with the promise of government “stim” plans for 2017 and beyond. The XLI got a big pop in November and is up 8% over two weeks and surprisingly up 16.26% YTD. Caterpillar (CAT) for example was leader in the Trump trade up 8 points since November 7.

Hot Biotech Stocks

On November 3 before the current rally we published a list of big biotech winners in 2016 to show that even in  a bear market the life science sector can deliver excellent results. Two of these stocks Array Biopharma (ARRY) $8.04 and Seattle Genetics (SGEN) $72.13  were original picks in our 2014-15 portfolio. Here is another hit list to show what has been moving in 2016 despite averages still down YTD.

Large Cap Winners

Few of the well known large cap stocks are winners YTD because of pricing and lack of growth. But Abbvie (ABBV) and Celgene (CELG) are both up YTD.

Mid Cap Winners

The stocks in this sector loosely defined as $5B-$15B Market Cap have been the sweet spot of the market beginning with the $14B acquisition by Pfizer (PFE) of Medivation (MDVN) up 68.5% YTD. We also had recommended Pharmacyclics on our list prior to being bought by Abbvie. Here are some of the notable best capitalized mid-caps to watch but many have already made big moves. Here is what we wrote in 5/15  and on 3/15 before the sell-off in July ’15.

Prices are 11/11/16

Alkermes plc (ALKS) $59.20 down 25.4% YTD

BioMarin Pharmaceutical (BMRN) $87.50 down 16.5% YTD

Incyte Pharmaceuticals (INCY) $108.10 flat YTD

Jazz Pharmaceuticals (JAZZ) $110.5 down 21.3% YTD

Seattle Genetics (SGEN) $72.13 up 60.7% YTD

Tesaro, Inc (TSRO) $134.46 up 157% YTD.

Vertex Pharmaceuticals (VRTX) $89 down 29.2% YTD

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Risk is off for biotech although seasonality till year-end should help. But with so many opportunities in the broad market for equities it is hard to focus on biotech and healthcare.The Health Care SPDR XLV is still down over 30 days despite the huge rally.

In Rayno Biobeat #4 Part 2 we will review more hot stocks focused on smaller caps.