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As entrepreneurs who aspire to either become a publicly traded company or be bought by one, understanding the dynamics of the public markets is fundamental to achieving your ultimate liquidity goal. It is one bookend of valuation.
For adrenaline seekers there’s nothing quite like riding the lift hill of a grand roller coaster. The expectation, anticipation, and sometimes fear build progressively and proportionate to the distance from terra firma.
Stock prices feel a little like that as the chain lift cranks higher and we feel gravity at our backs. What sort of ride is in store for investors? Are we even at peak kinetic energy?
There are all sorts of signs of improving economic activity. While I could cite the usual boring economic statistics, there are a handful of local leading economic indicators I personally enjoy.
One is the Union Pacific railroad. It rumbles through the west side of downtown Austin for no particular reason but it can. The number and size of trains for me says something about the health of central Texas economy at least. Pretty good is all I can offer from personal observation.
This past week large cap anything rallied. At the index level, large-cap technology as represented by QQQ at +3.86% and S&P Technology sector ETF (XLK) at +4.64% reasserted market leadership with XLK hitting a new 52-week high after a seven-week correction and continuation.
OEF (S&P 100 largest stocks) rallied +3.39% and hit a new 52-week high. SPY rallied 2.72% and hit a new 52-week high and outperformed all but tech (XLK), discretionary (XLY) and communications (XLC) sectors. This is the large-cap growth group coming back to life after a little respite. Expecting to embrace earnings.
If the expectations for earnings and outlooks are not met, one expects brutal selloffs for misses. Gravity.
For an up-to-date analysis, see this week’s Healthcare Segment Scorecard below.
Healthcare (XLV) remains a significant underperformer in all time frames out to 12 months. Perhaps the one-year anniversary of the Covid pandemic provides some insight. Like many businesses, healthcare was impacted in multiple ways by the pandemic, the sum of which is obviously a headwind to market valuation overall. Uncertainty remains high and clarity low as to how future revenue streams and earnings are restored..
For example, we don’t know when or if there is restoration to prior levels of procedures and visits. Providers ($DJUSHP) had to suspend their lucrative elective procedures and many other services not related to the diagnosing and treating Covid patients.
Healthcare behaviors have changed as well with individuals foregoing preventive screening and/or non-emergent procedures. This impacts not only providers but also equipment suppliers ($DJUSAM) and some pharmaceuticals ($DJUSPR). New behaviors have included greater acceptance of digital solutions and greater demand for virtual care, home monitoring and expansion of care management automation. (e.g., EDOC)
In some ways in the last week the pattern of healthcare equities reverted to an earlier period of the pandemic when medical supplies ($DJUSMS), equipment and providers performed best. Looking at the chart features these three industry segments show the greatest price strength and recovery from recent corrective action.
Biotech ($DJUSBT) and pharma ($DJUSPR) continue to show weakness. There are likely a number contributing factors. One is the large number of new biotech firms going public by one means or another in Q1 flooding the market with new stock. These two are also targets for government regulations, antitrust enforcement and potential negative tax impact. Stay tuned but for now it is a negative headwind.
As I See It: We are climbing the big lift hill. Recent repetitive rotations on falling volume feels like positioning in front of the news. The general expectation is clearly for good news but there is plenty to worry about. The news had better be good or watch out below. That first drop could be a doozy.
April 12, 2021
Bob Teague, MD
Chief Medical Officer
Green Room Technologies
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