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Biotech ETF Snaps Its Win Streak In 2017 As Trump Slams Drug Pricing

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Exchange traded funds tracking major stock indexes closed higher in a choppy session Wednesday. Stocks recovered into the close from a setback after President-elect Donald Trump roundly criticized the drug industry.

SPDR S&P 500 ( SPY ) added 0.3% on the stock market today . This ETF, a proxy for the broad U.S. market, sits just below its December high of 228.34.

[ibdchart symbol="IBB" type="daily" size="quarter" position="leftchart" ]

Biotech ETFs turned sharply lower in the afternoon session after the incoming president slammed the drug industry in his first news conference since the Nov. 8 election result.

"We have to get our drug industry coming back," Trump said at the media event. "Our drug industry has gotten disastrous. They're leaving left and right. They supply our drugs but they don't make them here, to a large extent."

Trump added: "And the other thing we have to do is create new bidding procedures for the drug industry, because they're getting away with murder ."

IShares Nasdaq Biotechnology ( IBB ) dived 3% following those remarks and closed in the red for the first time in 2017. The loss came in almost triple the usual trading volume.

The ETF sits 7% below its September high of 301.80.

Biotechs spiked postelection on expectations that Trump would be more friendly toward the industry than his presidential rival Hillary Clinton, but his recent remarks have dashed those hopes.

Tax Reform

The stock market has rallied in anticipation of a business-friendly Trump agenda, but the mix of corporate tax cuts, fiscal stimulus and deregulation may be more than any administration can realistically achieve in one year, a BlackRock strategist cautioned on Wednesday.

"Given these realities, what are the particular reforms that are likely to matter most for equity markets?" Koesterich wrote in his note. "I would put corporate tax reform at the top of the market's wish list."

Corporate tax reforms, he added, would improve U.S. competitiveness and provide a tailwind to the market in the form of faster earnings growth.

Koesterich, co-portfolio manager of BlackRock's Global Allocation Fund ( MDLOX ), highlighted these reasons why corporate tax reform matters most:

  • Fiscal stimulus will probably to be too small and protracted to have much impact, as "deficit hawks" in Congress seek to keep any infrastructure spending modest.
  • The market needs earnings growth given the current steep valuations on U.S. equities and an environment in which the Federal Reserve is tightening monetary policy.
  • Corporate tax reform is the market's best chance of hitting earnings estimates. As U.S. companies come off a prolonged earnings recession, a cut in the corporate tax rate from the current 35% to 20% could add approximately $5 to $7 per share to S&P 500 earnings in 2017.

BlackRock describes itself as the world's largest investment management firm with $5.1 trillion in assets under management as of September. It is also the firm behind iShares ETFs.

IBD'S TAKE:As the Trump agenda emerges, readIBD LeaderboardandThe Big Picture every day to see how market leaders are performing and to assess whether the stock market has more room to run.

12 Bellwether ETFs

Here's a look at the performance of major exchange traded funds across key asset classes on the stock market today.

The Relative Price Strength ( RS ) Rating measures a stock's price performance over the last 12 months vs. all stocks and ETFs, on a scale of 1 to a best-possible 99.

SPDR S&P 500 ( SPY ), +0.3%, RS 55

PowerShares QQQ ( QQQ ), +0.3%, RS 55

SPDR Dow Jones Industrial Average (DIA), +0.5%, RS 62

IShares Core S&P Mid-Cap (IJH), +0.4%, RS 67

IShares Russell 2000 (IWM), +0.2%, RS 71

IShares MSCI EAFE (EFA), +0.5%, RS 40

Vanguard FTSE Emerging Markets (VWO), +0.9%, RS 45

SPDR Gold Shares (GLD), +0.3%, RS 22

United States Oil (USO), +2.7%, RS 40

IShares Core U.S. Aggregate Bond (AGG), +0.1%, RS 26

PowerShares DB U.S.$ Bullish (UUP), -0.2%, RS 45

IPath S&P 500 VIX Short-Term Futures (VXX), -2.1%, RS 1

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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