Price Gouging Debate Hits Biotech Stocks - Markets This Morning

  • Biotechs were hurt by price gouging and the possibility of regulation in response
  • The German DAX and NASDAQ eked out gains despite scandals
  • Oil was down, but oil stocks got a bid

Stocks started strong and finished OK, with some notable exceptions.

In Germany, the exception was Volkswagen (OTC:VLKAY), which lost 20% of its value after admitting it had used software to make its dirty diesel engines appear to be environmentally-friendly. Car blog Jalopnik wrote, simply, “Volkswagen is screwed” and no one came to defend the company, which faces billions of dollars in fines and a huge hit to its corporate credibility. Despite this, the German DAX managed a gain of .04% on the day.

In the U.S. biotech sector, a new company called Turing Pharmaceuticals bought a company called Impax, then raised the price of its 60-year old Daraprim medication, used to fight taxoplasmosis, from $13.50 a tablet to $750.

Turing CEO Martin Shkreli, a former hedge fund manager, defended his decision  based on the money he had spent buying Impax, but the anti-consumer attitude went viral, to the point where Presidential candidate Hillary Clinton sent a tweet promising to do something about such “price gouging.”

Mrs. Clinton, not the price gouging, was blamed by the business media for the subsequent fall in biotech stocks, with the iShares Biotech ETF (NASDAQ:IBB) falling 4.48% to $340.78. Major components in the index also fell heavily, including Valeant (NYSE:VRX), down 5.29% to $229, Gilead Sciences (NASDAQ:GILD), down 2.49% to $105.74, and Bristol Myers Squibb (NYSE:BMY), down 2.53% to $62.71.

Other Than That the Play Was OK

Other than that it was a good day. The Dow Jones (INDEX:INDU) finished up .77%, 125.61, to 16,510. The S&P 500 (INDEX:SPAL) finished up .46% or 8.94 to 1,966, and the Nasdaq (INDEX:COMPX) finished up .04%, or 1.73, to finish at 4,829. It followed a fairly good day on global markets, with Shanghai rising 1.86%, and the French CAC-40 rising 1.09%. The gains were not uniform – Hong Kong’s Hang Seng index dropped .75%, the Japanese Nikkei went down 1.96%, and Brazil’s Bovespa resumed its slide, losing 4.04%.

While the Nasdaq was weak – many biotech stocks are on the Nasdaq – computer technology did well, which is why the index itself finished flat. Apple (NASDAQ:AAPL) rose 1.55%, or $1.76, to $115.21, Amazon.Com (NASDAQ:AMZN) rose another 1.5% or $8.13 to $548.39, and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) was up .98% or $6.06 to finish at $666.98.

Big banks also recovered some of the ground they had lost on Friday. Bank of America (NYSE:BAC)  was up .93%, or 14 cents, to finish at $15.70, Citigroup (NYSE:C) was up .89% or 45 cents to $50.74, and Wells Fargo (NYSE:WFC) rose 1.06% or 54 cents to finish at $51.58.

The Oil Trade Can Work

Despite another sharp fall in crude oil prices, with West Texas Intermediate falling below $45 to $44.68 and Brent falling another 3.39% to $47.47, stock traders were nibbling on oil shares.

Two shares I have been looking at recently, Exxon Mobil (NYSE:XOM)  and EOG Resources (NYSE:EOG), offered good examples. Exxon started strong and stayed there, rising .96% to $73.38, while the EOG rally lost steam in the afternoon, with the shares finishing up just 26 cents, or .34%, to finish at $76.52. The shares were up another 23 cents, or .3%, in after-hours trading, so there may be more good news to come.

Other oil drillers also did well, on a belief they have the strength to make it until oil prices rise. Devon Energy (NYSE:DVN) rose 1.38% to $40.33, and Pioneer Natural Resources (NYSE:PXD) rose 1.6% to $123.83. Companies that have done best in lowering their production costs, and have the balance sheets necessary to keep pumping until spring, are likely to see further gains.

So What Happens Now?

There are two key questions to watch as people come back to work this morning.

Was China’s gain just a product of more government intervention, given that Hong Kong fell today while Shanghai rose, and will the U.S. market shake off concerns over government intervention to see the underlying strength of the economy?

As this is written, there are no answers to either question. The guess is that biotech bargain hunters will show up, but China’s government remains a black box, and anything could happen.

For a quick roundup of key news and events before the bell, check the daily news section - Markets This Morning.

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  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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