Despite positive news about China's trade negotiations over the weekend and related jumps in most stock prices, the healthcare sector has been hit hard. The perpetrator is an executive order aimed at lowering prescription drug prices in the United States. Donald Trump plans to implement the “Most Benefits of Countries” (MFN) policy. This policy will link Medicare drug prices to the lowest prices paid by other countries. As a result, drug prices in the US could fall from an estimated 30% to 80%. Or they could stand up abroad significantly.
At first glance, it is difficult for the healthcare industry, but executive orders face serious challenges. The industry has long argued that such policies will reduce innovation and reduce R&D. Additionally, the court can present important obstacles. The court blocked a similar proposal by Trump in 2020. It is also worth noting that details of the orders it covers, such as drugs and insurance programs, remain unknown. Furthermore, it may require action from the council to implement it.
The pharmaceutical lobby is strong. As we share below, thanks to Statista, pharmaceutical and health product companies spend a lot more on lobbying than other industries. They will put excessive pressure on Congress and minimize the impact of the executive order.
What to see today
Revenue
No significant revenues released today
economy
Market trading updates
Yesterday, the market rallied sharply following news that trade negotiations had been hit with China, reducing tariffs to just 30% over the next 90 days. Technically, we will continue to track the first decline and rallies in 2022. As mentioned earlier, I don't like analogues as “this time is always different,” but it's worth noting that the Bare Market rally looks like an end of the revision and a bull market return.
From a technical standpoint, the market also continues to reversal the very overselling terms into more optimistic terms.
As mentioned in Monday's trading update, this could still be a “Bear Market Rally” as we saw in 2022. This is completely possible. However, as the market exceeds both resistance levels at 100 and 200 DMA, there is a greater chance that the correction process will be over. With the MACD pushing a higher level and the RSI indexes overinstalled, it is at a level where you expect a “pause” in the rally before you increase the next push. If the market can consolidate a bit without falling below these previous levels of resistance, remove hedges and reduce cash holdings.
However, this week we have the following batch of economic data, including CPI: This could determine the next move in the market. We are a bit cautious about allocations, but the market reversal is healthy. We look closely at weekly metrics, but if they return to positive, we aim to completely cut down on overweight stocks. However, it can take several weeks to see these signals spin.
I'll trade accordingly.
Industry and healthcare move in opposite directions
As shown below, courtesy of SimpleVisor, the potential tariff impact plays a key role in the selection of the equity sector. Due to the news of tariff contracts, the industry and technology sectors, which are the most adversely affected by tariffs, are currently being acquired the most over-acquired on a relative basis. Healthcare hasn't traded much in rumors of enforcement actions that demand a lower drug price, but it's weighing medical stocks. The sector will be further pushed into an overselling position over the coming days as Trump's prescription pricing plan was announced on Sunday.
The graph on the right of the sector score shows that both healthcare and industry are circling around in the box on the top left, showing a decent relative score against the market, but absolutely sold. Over the past two weeks, industry has moved to the top right and healthcare has moved to the bottom left. The second graphic shows that aerospace companies are leading the industry sector.
Bear Market Rally, or just a revision?
Evaluating bear market gatherings proves challenging when you experience it first hand. It's hindsight that the big picture appears to investors. Of course, after a bear market gathering, investors tend to review their investments and speculate about what they should do.
Retail investors seem to think that the recent sharp revisions have probably ended. As mentioned last week in X, retail investors have piled up to US stocks at a record pace despite a nearly 20% revision in the market. Historically, retail investors have been viewed as paradoxical indicators, but in recent years, especially after the pandemic, they have been active buyers of any DIP in the market. Of course, their “buy dip” mentality is not surprising after 15 years of financial and financial intervention to stem the deeper bear market.
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