In a Very Ugly Market, One Sector Is Showing Signs of Life
Here's the news that is helping to create a bottom for the group, and three low-priced stocks I'm watching.
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Market conditions are extremely poor again on Monday morning as President Trump continues to attack Fed Chair Jerome Powell for his failure to be more aggressive in cutting interest rates. Trump says there is no inflation and no reason not to cut rates now.
Market breadth is running about 3 to 1 negative, with the Magnificent Seven MAGS dropping another 3.6%. As I write, only about five stocks out of the 101 names in the Nasdaq 100 QQQ are positive. The lone green big-cap standout in the S&P 500 is Netflix NFLX, along with some gold miners.
However, there is one area that is exhibiting some signs of life: Biotechnology IBB. Last week, I discussed my view that the group was close to a major cyclical low and ready to turn up. I listed seventeen stocks that I’m holding in the group. Monday morning, more than half of those stocks were up despite the very poor market action.
The main reason for this strength in biotechnology was the appointment of Marty Makary as the new FDA Commissioner. Over the weekend, he gave an interview in which he mentioned the following:
1. No cuts to scientific reviewers, inspectors, or law enforcers. The cuts at the FDA are in IT, communications, and legislative affairs.
2. A new pathway for drug approvals calling for a "plausible mechanism" pathway. This pathway for rare drugs allows for approval without data from clinical testing. If it is scientifically plausible that the drug will work for a rare disease, it will be approved and then monitored closely.
3. Drug approvals, in general, will be faster by using "organ-on-a-chip" and AI tools rather than relying mainly on animal testing.
Biotech stocks have been down-trending for years, but this news is helping to create a major bottom in the sector and some relative performance in an otherwise very dreary market.
Three lower-priced biotechnology names that remain my favorites are Xeris Biopharma XERS, Rocket Pharmaceuticals RCKT, and Mereo BioPharma MREO. Rocket, in particular, is benefiting from the rare drug program mentioned by Makary.
This is one very ugly market, but it is very interesting to see this positive action in biotechnology in a sea of red.
At the time of publication Rev Shark was long XERS, MREO and RCKT.
