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:
This morning's February Personal Consumption Index inflation report showed the core PCE rose 0.3% from January to February, down from 0.5% the previous month. Core prices rose just 2.8% year-over-year, down from 2.9% in January and the lowest such figure in nearly three years. Economists expected the YOY number to be over 3%.
h/t @Mayhem4Markets
Today's report showed a sizable 2.3% jump in energy prices that boosted the overall prices of goods by 0.5% in February. By contrast, inflation in services slowed to a 0.3% increase, a 3.7% annualized rate, from a 0.6% rise in January. While one good number isn't enough to spur the Fed to cut, especially when it is well above their 2% target, the report should keep the Fed in “High – but not higher – for longer” mode.
Next Friday, April 5, we see March payrolls. There is a simple rule to predict the beginning of a recession: A 10% rise in unemployed people.
h/t @MichaelKantro
To get there, we need to see services employment weaken. According to the St. Louis Fed, over the past 40 years, the services sector has grown to 79% of output, 85% of employment, 83% of companies, and 78% of household spending.
After stagnating for nearly 15 years, inflation-adjusted revenue per worker has increased sharply in the last couple of years to new highs.
h/t @BobEUnlimited
Market Outlook
After the best week since December, the S&P 500 added 0.4% since last Thursday, hit a new all-time high today, and set a new record of +27.3% for a 100-day return without a 2% decline. The Index is up 10.2% year-to-date, booking its best March quarter since 2019. The bullish reversal Wednesday indicates that another short-term low was made Tuesday without even hitting the 10-day moving average. The market keeps being very bullish and moves higher with minimal pullbacks even though the rate of ascent has been slower recently.
Yesterday it recorded its fifth consecutive all-time high monthly close. Strong future returns after these streaks are actually quite normal. It was higher a year later 26 out of 28 times (92.9%) and up 12.5% on average.
h/t @RyanDetrick
The Nasdaq Composite lost 0.3% but is up 9.1% for the year. But breadth is narrowing. Only 45.3% of stocks are above their respective 20-day moving averages, down from a high of 71.2% in December of 2023.
h/t @Mayhem4Markets
The SPDR S&P Biotech Exchange-Traded Fund (XBI) climbed 1.4% as the nascent biotech recovery continues. It now is up 6.3% year-to-date. The small-cap Russell 2000 won the week again, jumping 2.5%, and is up 0.5% in 2024. Does anyone hold small cap stocks anymore?
h/t @BobEUnlimited
The fractal dimension is setting new records for the most amazing trend ever. Our insurance puts probably will expire worthless – that's what insurance premiums do – so next week we'll roll them out a couple of months.
BofA said the current secular bull market from the 2013 breakout above the prior highs from 2000 and 2007 is middle-aged and can last until the late 2020s into the early 2030s. As you know, I think it will top in the usual 36 years from the last top – 2036.
h/t @WinfieldSmart
Economy
US economic data surprises have now turned negative.
h/t David Kostin - Goldman Sachs
You know it’s getting bad out there when the RIFers are getting RIF’d.
h/t @BowTiedBiotech
Gold hit a record all-time high yesterday and the FOMO gold fund inflows have started:
h/t @dailychartbook
Just as Chinese gold imports surge:
h/t @hkuppy
One chartist is targeting $2,444 for this move.
h/t John Roque
Last week, I wrote: “The fractal dimension again is flirting with signaling a new trend, but we’ve learned to wait until it clearly happens to call it.” So gold said: “Hold my beer.”
That's a new trend that should last into early July, with a temporary top in early May.
Biotech Focus
At the recent BIO-Europe Spring conference, David Thomas CFA, head of industry research at the Biotechnology Innovation Organization (BIO), suggested five reasons for investors to be bullish on biotech:
1. Record mergers and acquisitions. 2023 saw records with $78 billion in R&D-stage acquisitions and 48 emerging biotechs worth at least $10 million. I expect much more activity this year and next due to huge amounts of cash on Big Pharma balance sheets and very large drugs coming off patent to go generic.
2. Record market for obesity drugs, showing how fast a successful drug can get traction in the always-connected world we now live in. Analyst estimates place the obesity drug market north of $100 billion in 2030, up from just $3 billion a few years ago. Thomas said: “There are not too many other industries where the addressable market can change that dramatically in such a short time.”
3. Record number AI deals and breakthroughs, where I expect a dramatic acceleration as everyone had to become an AI biotech company. The first drug created by Generative AI reached Phase 2 clinical trials.
4. Legislation in Congress to change the Inflation Reduction Act (IRA) to reduce its negative impact, such as biasing against small molecules and penalizing companies for trying to to help rare disease patients via secondary indications. According to BIO's GoodDayBio, the (IRA is expected to have broad negative impacts on patients as it stands. Proposed fixes to the orphan drug and small molecule provisions are gaining traction, as are a reversal of R&D amortization accounting rules, and exemptions from onerous SEC reporting requirements for small companies.
BIO pointed out that heart disease innovations have had a profound and positive impact, with death rates from cardiovascular disease falling by double-digits between 2009 and 2019. The IRA threatens this success with a series of disincentives that hit heart disease innovation especially hard, which is why Congress must take up bipartisan solutions that would fix flaws in the law and protect patients’ ability to get the cures and treatments they need.
and perhaps most important:
5. Record FDA approvals for novel therapeutics
h/t @DavidThomasCFA
Coming Events for Free Subscribers
All times below are ET
Friday, April 5
March payrolls - 8:30am
Biotech Moonshots Portfolio Update
This was a tough week for biotech. The Moonshots portfolio fell 2.5% because of a “sell the news” drop after another FDA approval – this one of a drug sure to be a huge success in 2025-6. There's enough clinical and other data coming to drive our performance much higher in 2024. Let's dig in...
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Levels of Awareness In Politics
Level 1 - They believe what their preferred news say and do not sample other sources. Not aware of counter arguments. Not aware their news is mostly narrative.
Level 2 - Sample news from multiple sources but believe only their own sources are accurate. Think the other side is all narrative, but familiar with all sides of issues.
Level 3 - Aware that ALL news is fake, at least in the sense of missing context and spin. Also known as Gell-Mann Amnesia. But still believe the experts in various fields are usually correct.
Level 4 - Understand that NONE of our experts are reliable. Some might be right, but none can be trusted without verification. The distortion of money makes no expert credible.
Level 5 - They see the gears of the machine, Mike Benz style. The Republic no longer looks like whatever the Founders intended. The control of powerful billionaires and intelligence professionals is now obvious.
Level 6 - You are dead because you know too much. Also known as Epstein Level.
h/t @ScottAdamsSays
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The markets have changed dramatically since I joined American Express Investment Management.
h/t @dailychartbook
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Your reading about hyperinflation Editor,
Paid subscriber or not, if you would click the ♥ symbol below it would really help me get the word out.