Trump Can’t Scare Big Pharma Stocks

The pricing has been astronomical

That’s what Trump told a group of pharmaceutical CEOs at a White House meeting yesterday.

“The pricing” Trump’s talking about is the massive drug price increases that have made headlines over the past year. He’s also taking issue with where these drugs are made, telling industry leaders that they need to expand U.S. manufacturing.

Of course, a move to bring drug manufacturing back to the U.S. will cost a pretty penny, which will likely affect the bottom line for many of the bigger international firms. That can’t be bullish for Big Pharma.

Or could it?

You’re probably aware that the pharmaceutical industry has found itself in the crosshairs of politicians on both sides of the isle. Don’t get me wrong—I’m not shedding any tears for Big Pharma. But it would be nice to go a month or two without a politician derailing one of our trades…

Even a casual market watcher would assume the price gouging news would cause pharma stocks and the entire health care sector to suffer. And for the past few months, he’d be right.

Bu this week, the health care carnage appears to be coming to an end. Our favorite pharma stocks have finished crashing every time a price-gouging soundbite plays on the evening news.

In fact, we might be in for a powerful rally.

More on how a health care bounce is playing out in just a minute. First, you need to understand how the heck these companies found themselves fighting for their existence in the first place…

During the campaign season, Hillary Clinton was the first to pounce on drug makers. Clinton took a big bite out of biotech stocks during the Mylan (NASDAQ:MYL) EpiPen pricing scandal.

You’ll recall that EpiPens are used to combat life-threatening allergic reactions. And you probably also remember that some folks think EpiPens are too expensive—and the company had gradually raised the price for years.

Hillary was quick to jump on the outrage bandwagon. The campaign issued a statement back in August calling the EpiPen price hikes outrageous. Clinton is also called on the company to “immediately reduce the price of EpiPens”.

Then Trump needed to get in on the action—right as health care stocks were just beginning to look constructive again.

All the controversy added up to a rough year for the health care sector. Even after bouncing off its winter lows, the group underperformed every other major sector on the market in 2016. Just a few weeks ago, we noted that the Health Care Select Sector SPDR (NYSE:XLV) had just registered its first annual loss since 2008.

But the healthcare sector has exploded out of the gate in 2017. It was the strongest sector on the market during the first trading week of the year. And even as Trump tries to talk these stocks down, they’re beginning to fight out of their collective funk.

Yesterday’s action was telling. While the Dow shed more than 100 points, the health care sector roared off its lows and finished the trading day higher by 1.6%. The beaten-down biotechs were even stronger. This group jumped a whopping 4% on the day…

We should expect some continuation after yesterday’s big bullish bars from both health care and biotech stocks. Dow 20,000 mania might be over—but that doesn’t mean these forgotten sectors won’t flourish.

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning