Coming into the week, there isn’t a lot of economic data on the docket, but there will be two reports on housing, which is the wild card in this economy. Homeownership looks as if it’s finally turned the corner- destroyed by the housing crash and policy decisions and regulations that have slowed access to capital for would-be home buyers.
Message of the Market
The market limped into the weekend, but the Dow Jones Industrial Average was able to finish higher for the seventh straight session. It’s clear the bias has shifted to the upside, helping the market open higher and then getting an early boost from the consumer sentiment release, which was slightly better than expected.
This is good news as there are lingering concerns about consumer ability or willingness to spend.
Take a Chill Pill
Healthcare was the best performing sector on Friday.
I had the pleasure of interviewing Health and Human Secretary Alex Azar on Friday morning on the administration’s plan to attack runaway drug prices, and he was impressive. Not only did Azar make the rounds on television, but he also appeared with President Trump from the Rose Garden at the White House to make his pitch to the American public.
A 50-Point action plan will look at all the angles to bring down the cost of prescription drug prices. The problem is, Wall Street has decided the plan is more a placebo than a cure-all.
There is no doubt the president’s heart is in the right place, but this is a behemoth of an industry. According to the Centers for Medicare and Medicaid (2016), the national health expenditures topped $3.3 trillion or $10,348 for each American. Of this amount, prescription drugs amounted to 10%.
President Trump made the point that the medical industry spends $280 million a year on lobbying, which is more than tobacco, oil, and defense combined.
However, investors decided there will be little the White House can do to significantly curb drug prices.
These drug stocks used to swoon on President Trump when he mentioned them in the past, but perhaps no more.
- iShares U.S. Pharmaceuticals ETF (IHE)
- -1.9% Dec 7, 2016: “I’m going to bring down drug prices…”
- -2.2% Jan 11, 2007: “they’re getting away with murder”
- -2.6% Mar 7, 2017: (tweet) “working on a new system…to bring down drug prices”
- -2.1% Jan 31, 2018: “very very unfair”
- -0.6% Mar 20, 2018: “they’re getting away with murder”
- +2.4% May 11, 2018: "This is a total rip off, and we are ending it"
Energy was the big winner last week as crude oil surged to $71.00 a barrel, and crude oil stocks began playing catch up. It’s difficult to know where crude oil goes from here, but I suspect momentum and forces like The Organization Petroleum Exporting Countries (OPEC) will keep nudging the price higher.
Financials were factually off on Friday, but it was the second-best performing sector. Still, those powerhouse names such as JPMorgan Chase (JPM) and Goldman Sachs (GS) are still not living up to the hype.
S&P 500 Index
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
The big question for this week is where the market gets its impetus.
The earnings season is winding down, and there isn’t a lot of economic data either. There are gobs of Federal Reserve officials scheduled to speak, and it would be great if they could provide a wink and a nod on slowly walking rates higher.
These kinds of weeks can be boring, but they can also give us a greater raw glimpse into the confidence of investors sans outside news and speculation.
All the major indices opened in the green. Let's see how things trade this morning.