Economic Confusion and Weakness Drag on Market
GDP disappointed while inflation startled investors. But I still see potential in biotech.
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Weaker-than-expected gross domestic product and higher-than-expected personal consumption expenditure inflation spooked the market on Wednesday morning. There are nearly five stocks declining for each one advancing, and the Magnificent Seven MAGS is leading the decline with a drop of about 3%.
The GDP Report is for the first quarter of the year, and there is quite a bit of confusion about how much it will be impacted by moves that were made in anticipation of Trump tariffs. There was a rush to ship goods to the U.S., which would impact inventories, but there were a lot of moving parts there that likely caused some anomalies in the numbers. Much of the economic weakness is the unwinding of the many economic excesses during the Biden Administration.
The bigger and much more concerning problem is that these numbers are a precursor to the impact that tariffs will have when they hit primarily in the second quarter. There is no way they will have any positive aspects in the short term. Many businesses are now struggling with the ability to plan and are not going to be able to even operate unless there is some clarity soon.
Earnings tonight from Microsoft MSFT and Meta META are unlikely to help the bullish cause very much. While expectations are quite low, it is very likely that management will withhold guidance due to economic uncertainty. It is going to be very difficult for a stock without some strong guidance to attract buying interest.
The only green on my screen is biotechnology names such as BridgeBio BBIO, TG Therapeutics TGTX, Verona VRNA, Biohaven BHVN, uniQure QURE, and a few others.
As I recently discussed, I anticipate a major turn in the biotechnology sector IBB after years of underperformance. The group is mostly sheltered from tariffs, and some of the recent changes at the Food and Drug Administration may be beneficial and speed up drug approvals. Valuations are at cycle lows, and we are starting to see some acquisition action in the sector. I expect it to remain bumpy, but when a group like biotechnology outperforms on a day like this, it is a positive omen.
At the time of publication, DePorre was long BBIO, TGTX, VRNA, BHVN, QURE
