Biotech Drags Market as Attention Turns to Fed
Breadth was negative once again as the drug and biotechnology sectors were hit hard.
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Stocks struggled for the second day in a row, with breadth running about two-to-one negative once again. Most of the damage occurred in the drug and biotechnology sector, but the Magnificent Seven MAGS lost about 0.9%, and small caps and the DJIA were hit for a 1% loss.
There were some signs of dip buyers, but they ran out of steam as the day progressed. The biggest problem is that there is still no clarity about progress on trade and tariff deals. President Trump made a number of random comments during his meeting with Canadian Prime Minister Carney, but was very vague about the frame for any news.
The drug and biotechnology sectors were hit very hard after the appointment of Dr. Vinay Prasard as the director of the Center for Biologics Evaluation and Research (CBER). He has been an outspoken critic of the COVID vaccines and has strong views on a number of topics. The whole group was sold, although many of the stocks will not be subject to his oversight. There may be some opportunities here once the smoke clears.
On Wednesday, the market will turn its attention to the Fed, which means that inflation and economic growth will be the primary topics. The Fed is not expected to cut rates, but investors will be watching to see what Jerome Powell has to say about the impact of tariffs on inflation and the economy.
The consensus view of many Wall Street strategists is that it is now too late for the economy to avoid the fallout from tariff turmoil, but hopes of some trade deals have delayed some of the worries and provided support for the market. The longer we go with no change in tariffs, the greater the potential damage.
The biggest danger that lies ahead is stagflation, and any hint that the Fed is concerned about that issue will likely receive a negative response.
So far, the pullback after the big bounce has been fairly mild, but if it goes much deeper, the folks who were excited about breakaway momentum to the upside will have to reconsider their bullish stance.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
