The S&P Biotechnology Select Index continues to hold above the 200 day moving average as the sector rally enters its 10th week from the June low.
Strategists and analysts continue to debate whether this is simply a bear market rally as trading desks have estimated this is the third largest hedge fund short covering event in the last decade, while retail options trading activity is at its highest level since April. The siren song of upside momentum coincides with the market apparently calling the Fed's bluff. Bloomberg consensus Federal Funds Target Rate projections peak in 1Q 2023 (below 400 bps) with cuts expected to start by 2Q 2023 despite jawboning from Fed officials that rates may need to be 'higher for longer' to tame red-hot inflation.
Likewise, the market appears to be discounting the increase in corporate tax rates and drug price controls imbedded in the Omnibus 730 page so called Inflation Reduction Act that is expected to be signed into law this week after an affirmative vote by House Democrats last Friday.
In contrast, the market seemed to have an acute case of heartburn in response to pending litigation related from the withdrawal of Zantac from the market in 2019. Pharmaceutical companies GSK (GSK), Sanofi (SNY), Pfizer (PFE), and Haleon (HLN) lost a combined >$40 billion in market capitalization on fears there could be a punitive outcome from the product liability trials that begin at the end of the month.
Many analysts have remained constructive on these pharmaceutical stocks based on review of the facts and circumstances of the cases, but the negative stock reaction is a timely reminder that every bear has its day.