Stocks
What a great way to end a bad week.
Yes, the market got pounded over the five days ended Mar. 2, and it looked like it would today as well. But the S&P 500 dropped “just” 2%, to 2691.25, this week after gaining 0.5% today, while the Dow tumbled 771.93 points, or 3%, to 24538.06, after declining 70.92 points, or 0.3%, today. The Nasdaq declined 1.1%, to 7257.87, after it climbed 1.1% today.
So maybe we’re making too much of this tariff thing? Fundstrat strategist Tom Lee thinks so. In a note this morning, he dubbed the S&P 500’s 4.6% peak-to-trough decline—something that’s been experienced just 2.5% of the time since 1928—an “over-reaction,” and one the market should bounce back from.
Still, it does suggest that something really is different now. “Over the past week, concerns about Fed hikes ([Fed Chairman Jerome] Powell testimony) and concerns about trade wars (steel tariffs is the latest, but advocacy of weak USD previously) suggest the ‘honeymoon’ for the Fed and the White House has ended,” he writes. “This is another change in the market backdrop compared to 2017, on top of the change in inflation outlook (wages) and the resulting expectations for long-term rates.”
More changes we’ll have to get used to. —Ben Levisohn
Biogen Shrugs Off MS Failure
Biogen (BIIB) and AbbVie (ABBV) announced Friday that they were voluntarily withdrawing their multiple sclerosis drug Zinbryta, citing the limited number of patients being treated amid recent safety concerns.
The withdrawal comes after the European Medicines Agency flagged reports of inflammatory encephalitis and meningoencephalitis, and the firms said that without more patients on the drug, they won’t be able to create a new risk-benefit profile of Zinbryta.
Markets seemed little concerned with the news, as both stocks finished up on the day: AbbVie rose 1.1%, to $115.04, while Biogen gained 1.6%, to $286.96. There’s a good reason for that. “Biogen and AbbVie’s decision to voluntarily remove Zinbryta from the market has minimal impact on our estimates and doesn’t deter us from calling for upside to 2018 MS franchise sales,” writes BMO analyst M. Ian Somaiya.
This isn’t the first MS drug setback we’ve seen this week: Celgene (CELG) also took a hit when the Food and Drug Administration issued a Refusal to File Letter for ozanimod, leading many analysts to estimate a year’s delay for its approval. The reaction, however, was very different: Shares of Celgene dropped 6.6% this week. —Teresa Rivas
Which Airline Should Investors Fly?
In a tough week for the market, the three major airline stocks outperformed, with only negligible differences in their percentage changes. But just because the market couldn’t decide which it preferred doesn’t mean investors shouldn’t.
American Airlines Group (AAL) fell 0.4%, to $53.18, this week, while Delta Air Lines (DAL) dropped 0.4%, to $53.26, and United Continental Holdings (UAL) dipped 0.1%, to $67.51. So which should investors prefer? Morgan Stanley’s Rajeev Lalwani calls Delta his favorite, and his only-Buy rated of the three, followed by United and then American.
to deliver operating margins of about 14% in the next year, compared to 9% and 11% for United and American, respectively, while its free cash flow is likely to be in the mid-to-low teens range, slightly above United and well above American’s mid-single digit level. Moreover, Delta’s debt is investment grade, while the other two airlines’ is not.
Lalwani’s expressed his preference for Delta before, but when it comes to choosing United over American, he points to the fact that United has the “most catchup potential” after its recent declines, as it continues to clean up fares and see improvement in Asia, while he thinks American’s sales growth will be limited going forward.
Airlines had a rough start to the year, but they still have plenty of fans…including Warren Buffett and Barron’s own Andrew Bary, who named Delta a top pick for 2018.
