Published January 26, 2018
Almost a full eleven months ago we wrote about a coming change of fortune for biotech stocks. It appeared back in March 2017 that the group, after 18 months of pain and an almost 50% plunge in price, was about to launch a new bullish period. It took quite a bit longer than expected, but we are pleased to announce that this week the group finally achieved full-out liftoff!
Here are the charts we posted back in March of last year as the group appeared poised to bust an upward move:
And here is where we are this week – liftoff achieved:
Charts 1 and 2: Biotech ETFs break out to new highs
The breakout this week came from a couple of acquisitions in the biotech arena – Celgene’s buyout of Juno Therapeutics for $9 Billion and Sanofi’s purchase of Bioverative for $11.6 Billion. Acquisitions bring attention and new money to the sector. Stock values are bid up as other potential takeover candidates get revalued to be more consistent with the fresh takeover prices. In other words, investors flock to the group hoping that one takeover begets another and another.
Healthcare only represents about 10% of the Nasdaq 100 (QQQ) these days. Nevertheless the fresh breakout in this sector is yet another demonstration of the strength of this rally as investors continue to find new places and new reasons to buy, buy, buy.
Stocks zipped higher Monday in response to resolution of the government shutdown. The S&P 500 rose +0.8% with strength from energy stocks as Halliburton (HAL) delivered upbeat earnings. Netflix (NFLX) soared +10% Tuesday on a powerful earnings and subscriber growth story. That pushed the Nasdaq higher by +0.7% while the broader market sported a mixed return. Renewed weakness in the U.S. dollar on comments from Treasury Secretary Mnuchin weighed on markets Wednesday. Texas Instruments (TXN) slid almost -9% on its earnings report driving down the semiconductor sector and pressuring the Nasdaq. The broad market held its ground, however, to close flat. The U.S. dollar fell further Thursday before an interview with President Trump supporting the greenback recovered the downdraft. Good earnings from Caterpillar (CAT) and 3M (MMM) helped the S&P 500 breakeven on the day. Blowout earnings from Intel (INTC) and drug maker Abbvie (ABBV) sent stocks sharply higher Friday to a +1.2% gain.
The bulls kept their perfect 2018 going with another weekly gain as generally good earnings reports poured in. The S&P 500 (SPY) rose +2.20% while the Nasdaq 100 (QQQ) added +2.76%. The small-cap Russell 2000 (IWM) delivered a relatively lackluster +0.63%.
Warm wishes and until next week.