October 1, 2015
Weekly Market Outlook
By Keith Schneider
Equity Markets remained under pressure this week with the key US Indexes closing down led by both the mid –caps, which closed down almost 4%.
More telling was the massive selloff in bio-tech, triggered by the revelation that a small biotech firm led by a former Hedge Fund manager Martin Shkreli was able to corner the market on some old generic drugs and then jack up the price 5000% which gave Hillary, the current democratic presidential frontrunner, the opportunity to offer her solution to the problem. She promises to take on “price gouging” in the pharmaceutical business should she become president.
The fact that what had been the leading sector during the bull run that started in late 2012 came to an abrupt halt triggered by comments from a presidential hopeful well over a year away from maybe taking office, is a classic trading lesson which is the reaction to news tells you more about the market than the news itself.
What the news did do is highlight some interesting facts about the drug industry and in the longer term if scrutinized could have effects on profits. Essentially, the combination of tough FDA regulations on drug approval, not allowing foreign regulated and manufactured drugs into the US, along with big pharma that is not interested in small niche drugs; furthermore, with the process for getting drug approval in the US far from efficient, all of this has allowed Shrekli to exploit the market.
More interesting is with Bio tech definitively losing its leadership position, what is going to takes its place?
On other fronts there was no lack of headlines to focus on, from VW’s emissions fraud which tanked not only VW stock but the entire German stock market as well, to Yellen’s press conference where the intense pressure on her and the Fed took its toll and she almost passed out before alluding to a raise rate in 2015.
Let’s not forget House of Cards leader Boehner’s resignation and what that says about the state of things on Capitol Hill.
Also in the news was the Pope and his historic lecture to Congress that even overshadowed a state visit by Chinese leader Xi Jinping and the pressing issues that include economic warfare that is raging between the world’s two largest economies.
The list goes on from there to include a brewing civil war in Turkey and Russian military involvement in Syria. Putin will be taking off his shirt and flexing muscles with his upcoming meeting this week with Obama and that could lead to yet more tension in Europe and the Mid-east.
Getting back to the charts and some stats, the strong 7 ½ year boom bust cycle is upon us and has topped, with the tricky August thru October stats yet to play out.
October as a month is particularly interesting. Since 1928, October on average is up about .4%. However the biggest drops including the one in 1929 and 1987 and, both occurred in October.
Adding in some additional seasoning to the pot, 9 of the last 11 recent drops of 10 % or more have more often led to end of year rallies starting early to mid-October, assuming the August lows hold.
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