Nasdaq Biotechnology Index Falls Further

29 Sep 2015 | Author: | No comments yet »

Good-Bye Biotech Bull, Hello Pain.

The S&P 500 is down 8.8 percent in the third quarter, poised for its worst fall since 2011. US stocks fell, with equities down for a fifth consecutive session, as raw-material and energy shares retreated amid more signs of slowing in China while biotechnology companies extended last week’s selloff. “There’s no conviction in this market whatsoever and there hasn’t been for a very long time,” said Michael Ingram, a market strategist at BGC Partners in London. “If the Fed appears to be so hesitant, why should traders who are putting money to work on a daily basis be any more confident? The other issue is what’s going on in China.” Biotechnology shares tumbled on Friday, offsetting gains fueled by Fed chair Janet Yellen’s reassurances that turbulence in emerging markets won’t harm US growth.

The latest bout of selling appeared triggered by a Twitter TWTR -0.12 % comment from Hillary Clinton last week that raised concerns about drug-price limits. Dudley said on Monday that the central bank will “probably” raise interest rates later this year despite uncertainties over global growth. “I think that the economy is doing pretty well,” Mr Dudley said at an event in New York.

Of the 18 prior bear markets, the average length was about three months (92 days) over which time the index dropped an average of 29.3% (median: -26.7%). A report on Monday showed US household spending climbed more than forecast in August and incomes also rose as the biggest part of the US economy continued to power past a global slowdown. Based on these prior declines, if the current bear market follows the ‘average’ path, it would imply further downside of about 10% over the course of the next three weeks.

O’Brien said much of the recent selling appears driven by short-term investors, given the heavy volumes in major biotechnology exchange-traded funds. Larger, institutional investors appear to be mostly staying put, he said. “The ETFs are still driving the boat,” he said. “The volume is not in the underlying stocks,” he added. We’re losing what little leadership we had left.” The Nasdaq Biotech Index slid into a bear market on Friday amid its worst weekly decline in four years.

The rout was sparked by a tweet last Monday from Democratic presidential hopeful Hillary Clinton suggesting there may be “price gouging” in the market for prescription drugs. One of the sector’s biggest losers on Monday was Verastem Inc., VSTM -67.37 % down 69%, after the company said it would wind down a midstage clinical trial of an experimental mesothelioma drug. Stocks fell after the Fed’s decision to hold off raising rates on Sept. 17 raised questions about the impact of a global growth slowdown on the U.S. Marshall Gordon, a research analyst who follows the health-care sector for ClearBridge Investments, said drug prices are often a point of focus, but the rate of new drug development and underlying fundamental trends in the sector are still in good shape. “We all know that it corrects from time to time—it’s a momentum sector,” Mr.

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