What is happening here is still a manifestation of the 2008 financial disaster. Yesterday I got a haircut and sat in the chair of a delightful 25-year-old gal. She had a good head on her shoulders but felt very troubled by her generation. The problem is many of her peers graduated from college after the crash but saw no opportunity, no jobs waiting for them. Victimsofcommunism.org posted a report that showed surprising support for socialism and communism among younger Americans. Forty-five percent of those aged 16-20 would vote for a ‘socialist’ while 21% would vote for a ‘communist.’ The vast majority of them are unaware of communism’s death toll while more millennials prefer Karl Marx to the Bible.
I think we can all agree something is very wrong, but the market doesn’t react until it becomes personal. What does that mean? Until the social unrest starts to hit the pocketbook which manifests in a poor earnings report will the market wake up.
Thus far at the start of the new week markets came out of the gate flat. But let’s go back to last week. On Wednesday markets gapped up and Stuart Varney was beside himself with glee. Mr. Varney is excellent in his role. He is a cheerleader for the middle class and has been holding Congress accountable all year for their lack of progress on the tax issue. As traders, one of our jobs is to look for euphoria at tops and blood in the streets at bottoms. The ‘laughing gas’ has been notably absent until last Wednesday. You can look at the SPX, within a half hour of Varney’s comments the market peaked and by Thursday was lower. Once again, bears struck out with another failed attempt to go down. On Friday the VIX once again hit below 9.00.
Elsewhere, in addition to the Transports, housing stocks got hit as news of the tax cut got out. Apparently, the mortgage interest deduction is going to be capped at $500,000 which is going to hit the homebuilders. Tech sectors remain strong while banks are neutral right now. One area of technology that has weakened since last week is biopharma where the industry is now concerned about new drugs in the pipeline not panning out the way they’ve hoped. In other words, some of these products they are rolling out haven’t lived up to the hype. For instance, CELG plunged 16.4% following the release of Q3 results as revenues fell short. They lowered their outlook for Otezla sales and discontinued something called GED-0301 which was supposed to treat Crohn’s disease. Voyager Therapeutics was down over 7% as Sanofi exited their VY-AADC program for advanced Parkinson’s disease. Biotech is hit or miss. They go through long stages of technical advancement, but it can sometimes be an industry of three steps forward and two steps back. But it will be difficult for the tech to sustain without biotech or biopharma.
Coming into the week, we see two banana peels in the Transports and biopharma. Up to this point, markets have healed and caught the 2nd wind each time it looked like these sectors got hit. One must wonder how much gas is left in the tank. The market has a slim window to consolidate now through Thanksgiving but after that people get more wrapped up in the holidays and serious moves get put off to the new year.