Hangover from EpiPen Pricing May Take Time to Clear

The healthcare sector was one of the worse performers YTD and down 3.24% in August as tracked by the XLV Health Care SPDR ETF. This underperformance lowers the YTD to only a 1% gain. Among the leading sectors YTD are Telecom (IYZ) up 11%, Energy (XLE) up 13.6%, Utilities (XLU) up 11% and Materials (XLB) up 12%.

Biotech stocks (IBB) were also down 2.94% for the month despite a nice recovery through most of Q3 until getting hit as collateral damage by the Mylan (MYL) EpiPen media downdraft. The IBB rallied from $250 to the $300 resistance level settling today at $280 near term support.

The XBI tracked the IBB down 3.19% for August and down 14.4% YTD.

• Bellwether Celgene (CELG) was off 4.86% to $106.74 for August after hitting highs of $116 in early August. $106 is a key support level.
• M&A is still a bullish factor in the market, maybe more so with price increases limited and inversions stopped.
• Large caps earnings for Q2 were OK with no big surprises. Is there value?
• Gene therapy stocks got hit today perhaps because large cap Novartis AG (NVS) is dropping  development and cutting 120 jobs. BLUE, JUNO, and KITE were down.
• Risk remains off but there is a good possibility that large fund managers will rotate money into healthcare where there is more growth potential.We are still betting on a fourth quarter rally so Rayno Portfolio stocks including IBB are still a  hold.

Drug pricing is a recurrent theme in the healthcare sector and was in the background until the Mylan story hit.