We have gotten past the Jewish High Holidays (though Sukkot runs over the weekend) and some of my business travels to/from and in the west (though I return next week). When I last left off the markets were disappointed by the Federal Reserve’s decision to delay their interest rate increase. Still, at the time, the markets, defined by the S&P 500 (SPX), while off by 4.5% for the year and quarter, were holding in well.
Then out of the blue, Hillary Clinton, on Twitter (TWTR), in twenty-one words, on September 21, 2015, single handedly, brought the markets to its knees. Those words:
“Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. –H”
That sent the biotech market into a freefall. The biotech market took the rest of the tech heavy NASAQ along with it. Of course, there was collateral damage to the SPX. Since September 18, these indexes performed as such: NASDAQ Biotech (NBI) – 18.73%; NASDAQ 100 (NDX) -5.56%; and, SPX -3.78%. Over that period of time, especially last Friday and this Monday, the markets had some rather horrible sessions. With Biotech and NASDAQ being some of the most growth oriented sectors, the damage done to growth and tech portfolios was rather great.
All of this happens to have sped up the retesting of August’s lows. Now that that has nearly occurred, and once we get through the end of the quarter, I believe we can find a bottom and rebound. Nevertheless, the damage was done, thanks to Hillary.
The damage is far greater than just some biotech and technology stocks. What she did was remove incentive and motivation for doctors, scientists and business people to perform research, discover and then market a cure for diseases and other conditions. It takes hundreds of millions or billions of dollars over many years for drug manufacturers to research, test and then have approved a new medication.
Once that drug comes to market, the pharmaceutical company has to not only recoup its prior research and development expenses for the drug, it has to cover costs for failed drugs in its former pipeline and then try to make a profit while marketing the drug. Then consider that the drug is protected by patent for 20 years. However, that patent clock begins at the time of application, before the clinical trials, which can be many years before approval and marketing takes place.
So now, because Hillary is trying to garner votes by painting the pharmaceutical companies as villains, the unintended consequences of her tweet will be felt for years. Even more if she gets elected. With her tweet, how can someone raise funding now for a pharmaceutical project? How many cures will not be discovered or be pushed out for many years because of her tweet? I am afraid to say many in the short run, and if she is elected, plenty more in the long run.
By the way, her “plan” was for the most part nonsensical and will create a marketplace that will not foster innovation but will chase capital and talent to other endeavors. It proves her ignorance as to how the pharmaceutical and health industries and capital markets operate.
I am not being political (though I don’t support Hillary) but am being pragmatic – both from a financial and social perspective.
So this leaves us with a market that is now damaged, but not necessarily broken. The SPX is off nearly 12% from its all-time high but remains about 1% above its August low. The markets will need time to repair the damage done in the last week and a half. So, many analysts and investors, me included are looking at pushing our 2015 year-end expectations out to 1q16. I think we are going to have to accept what damage has been done and look at 2015, which just as recently as July, was looking to be a positive but average year, as one of those down years in a bull market.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long TWTR and TQQQ — although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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