The biotech bear market from February 2021 through October 2023 created some dramatically underpriced stocks. There is free money lying on the sidewalk, just waiting for you to pick it up.
Dear Biotechies:
As I expected, Nvidia (NVDA) reported a strong January quarter after the close yesterday and guided the April quarter above estimates. The stock was up $110.66 or 16.4% today to new record highs as Wall Street fell all over themselves to raise their ratings and target prices. Nvidia is a great company that I first recommended in 2000 in the California Technology Stock Letter and still recommend today in Boomberg. CEO Jensen Huang told me in 2000 that Nvidia would be a bigger company than Intel (another Boomberg recommendation) and he was right.
It's a bad idea to bet against Jensen.
But. Carefully listening to the conference call (AUDIO HERE) and reading the transcript (TRANSCRIPT HERE) tells me that Nvidia is successfully accelerating contracted production of their AI processors, so supply is going to catch up with demand. That means the quarterly revenue beats and estimate raises are coming to an end. And that means Wall Street is setting up one of their classic rug pulls.
There's been a real pile-on in tech over the last year:
And sentiment has moved from Greed to Extreme Greed:
h/t CNN
The rug pull will not necessarily be on Nvidia, which is genuinely a great company that all the investment pros have to own. But Nvidia's beat and raise drove the S&P 500 up 2.1% today to a record close, even though most of the S&P companies don't make AI chips or software, and in many cases are more threatened than benefited by the AI revolution.
Given that, and given that I've held two very different outlooks from Wall Street for quite a while, namely (1) High – but not higher – for Longer on the Fed funds rate, and (2) that there will be a recession this year, I think it's time to buy some portfolio protection. I've been thinking about this for a while but the fractal dimension is screaming that a correction is imminent (see below), so now is the time.
First, some caveats. Portfolio protection is insurance, and the cost of it is the insurance premium. Just like you don't want your house to burn down so you can collect on your fire insurance, or your car to be wrecked, you don't want to make money on portfolio insurance. It's there to let you stay invested in this secular bull market that won't hit a major top until 2036.
Second, you do not want to make a huge bet on a down market. This is not a speculation. Consider the cost of portfolio insurance as an expense – gone money you never will see again.
Third, there are many ways to protect a portfolio – index puts, VIX puts, reverse funds, and so on. There's no “right” way and some of you might want to try a mix of things. To see my immediate buy recommendations, subscribe to Bloomberg.
Recession Watch
Retail sales plunged by 0.8% month-over-month in January versus the -0.1% estimate, the sharpest drop since March 2023. Control-group sales (used to calculate GDP) fell 0.4%, the first decline in 11 months.
h/t Daily Chartbook
Market Outlook
The S&P 500 added 1.1% since last Thursday to new record highs today. The Index is up/down 6.7% year-to-date. The Nasdaq Composite gained 0.9% after yesterday's 3.0% jump, its best day in more than a year and pressing near a record-high for the first time since November 2021. It is up 6.9% for the year. The SPDR S&P Biotech Exchange-Traded Fund (XBI) climbed 0.9% and is up 5.4% year-to-date. The small-cap Russell 2000 dropped 2.3% and is back in negative territory for the year, down 0.7%. Even the venerable Dow Jones Industrial Average banked a 457-point gain yesterday. It was a global party: Japan's Nikkei 225 index finally beat a record that had stood since 1989 and the pan-European Stoxx 600 hit a fresh all-time intraday high.
The excellent Ed Yardeni reiterated his forecast for the S&P 500 Index of 5400 at year-end 2024, 6000 in 2025, and initiated 6500 in 2026.
h/t @yardeni
The fractal dimension is ridiculously low, meaning a consolidation - sideways for weeks or a serious drop – is overdue.
Gold recovered from a brief dip below $2,000 that probably cements that level in as solid support. The fractal dimension consolidation continues.
Bitcoin traded over $51,500 this week, the highest level since 2021. The ten bitcoin ETFs netted $2.27 billion last week after the ongoing GBTC bleed.
h/t @EricBalchunas
Bitcoin rallies have averaged 32% in the eight weeks leading up to the reward halving, according to 10X Research. Bitcoin's fourth halving is due on April 19 and a 32% gain would put it near its all-time high of $68,790. Also, bitcoin's daily relative strength index (RSI) has crossed above 80 for the first time since December. 12 out of 14 such previous RSI signals presaged accelerated uptrends, producing an average gain of 54% in the following 60 days. Bitcoin traded at $48,294 when the last signal was triggered, and if it increases 54% it will continue this rally to $74,600.
For my #1 way to own bitcoin + the only other crypto you should buy NOW, subscribe to Boomberg.
Coming Events
Tuesday, February 27
Short Interest - After the close
Wednesday, February 28
December Quarter GDP - 8:30am – Second estimate
Thursday, February 29
PCE – Personal Consumer Expenditures Index – 8:30am
Biotech Focus
As biotech stock prices started to improve in late 2023, inflows to the SPDR S&P Biotech Exchange-Traded Fund (XBI) started to improve. As the ETF started to buy biotech stocks, they moved up more, increasing the ETF's inflow:
For my #1 way to own bitcoin + the only other crypto you should buy NOW, subscribe to Boomberg.
Coming Events
Tuesday, February 27
Short Interest - After the close
Wednesday, February 28
December Quarter GDP - 8:30am – Second estimate
Thursday, February 29
PCE – Personal Consumer Expenditures Index – 8:30am
Biotech Focus
As biotech stock prices started to improve in late 2023, inflows to the SPDR S&P Biotech Exchange-Traded Fund (XBI) started to improve. As the ETF started to buy biotech stocks, they moved up more, increasing the ETF's inflow:
h/t @FinancialTimes
As fund flows picked up and sentiment improved, a US biotech fundraising boom ended the two-year deal drought. Drug developers raised $6.2 billion in January, helped by a rebound in merger activity. That was the largest total since February 2021, the same month that the XBI hit its all-time high. The head of healthcare equity capital markets at Leerink Partners said: “There’s been a noticeable, dramatic improvement in sentiment among investors.”
Mergers and acquisitions activity will follow. A look at quarterly M&A activity from 2018 to 2022 – the number of deals, total value, and key transactions – shows there's a long way to go in 2024. With major patent cliffs affecting virtually every Big Pharma by the end of the decade, I expect an accelerating, robust M&A environment in Biotech to drive stock prices much higher.
h/t @MoHossain
Initial public offerings have been picking up the pace, with strong performance by some recent deals. A capital markets partner at the Davis Polk law firm said: “There’s a good backlog of biotechs who didn’t go public over the past year or so who are sharpening their pencils again.” US-based CG Oncology jumped 96% on their first day of trading in late January. Arrivent Biopharma raised $175 million in an IPO the same week. Kyverna Therapeutics raised $319 million in an IPO on February 9. Kyverna raised its target price range, sold shares above the top of the increased range, and then the stock jumped a further 36% on its first day of trading. Kyverna's CEO said he was particularly encouraged by the level of interest from large generalist mutual fund investors, rather than only healthcare specialists.
2024 is the year you must be invested in biotech.
Biotech Moonshots Portfolio Update
This was a tough week for the Moonshots portfolio as it fell 3.7%, but there's enough clinical and other data coming to drive our performance much higher in 2024. Let's dig in...
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Your learning about RFK Jr. Editor, (movie is free during February)
Paid subscriber or not, if you would click the ♥ symbol below it would really help me get the word out.