MARKET RECAP
🚨 Goldman CEO and Jeff Bezos Issue Warnings As Market Hits All-Time Highs

😬 Last week, we talked about the ‘Buffett Indicator’ reaching an all-time high, and the many other warning signs that the stock market is looking overvalued.

📈 Well this week, despite a US government shutdown, the stock market pushed even higher, reaching yet another all-time high:

• The S&P 500 climbed +0.81%

• The Nasdaq 100 climbed +0.64%

• The Canadian TSX index climbed +2.1%

🗞️ The biggest headline this week was the US government shutting down after Congress failed to reach an agreement on the budget. But while this was bad news for the 2 million federal workers who got suspended, history shows past shutdowns have had little impact on the stock market, so investors have little to worry about.

⚠️ But while the shutdown may be of little concern, there were a few high-profile names warning investors about the frothy markets this week:

• Goldman Sachs CEO David Solomon warned that the stock market is due for a drawdown

• Jeff Bezos said that AI is in an industrial bubble (although he also said that society stands to benefit)

• And while less high-profile than the first two, Karim Moussalem, CIO of Selwood Asset Management, claimed the market “is beginning to resemble one of the great speculative manias of market history.”

✨ And since I’ve spoken endlessly about this topic already, I want to quickly highlight a quote from Solomon that I think is very important before moving on:

🫧 As I said last week, for the past 2+ years, there’s been constant calls that the stock market is in a bubble, that the stock market is expensive, or that a crash is around the corner… and as a long-term investor, you shouldn’t let that spook you or knock you off your course.

‼️ But in a bull market, as investors we have the habit of taking on more risk than they can really handle, falling into invincibility syndrome and acting as if nothing can ever go wrong… so as what seems to be my weekly reminder for you guys, make sure you’re not falling into that trap!

TOP STORY
💊 Drug Stocks Like Pfizer and Eli Lilly Soar After New Trump Drug-Pricing Deal

💊 I talk a lot about tech stocks on the Buzz, so for this week’s top story, I’m excited to be covering something a bit different - drug stocks.

😥 Drug stocks have been hit hard this year, with the S&P 500 Pharmaceuticals industry group index down -3.4% year-to-date while the S&P 500 overall was up 13%… but this week all that changed with the Pharma index soaring 10%.

📈 Some of the top names spiked even more:

• Pfizer ($PFE) jumped 15%

• Eli Lilly ($LLY) jumped 16%

• Merck ($MRK) jumped 13.5%

🤝 The reason? Pfizer scored a critical agreement on Tuesday, which analysts are calling the ‘best-case scenario’ for the company. Let’s talk about it…

⭐ A ‘best-case scenario’ for Pfizer

😬 Since Trump’s election, drug stocks have been shrouded in uncertainty as Trump announced plans to force drugmakers to lower their prices or else the US would ‘deploy every tool in its arsenal’ against the companies’ pricing schemes.

💸 Well, this week on Tuesday, Trump announced that an agreement had been reached, with Pfizer agreeing to lower the prices on most of the drugs it sells to Medicaid and sell new drugs at the same price in the US as other wealthy countries.

💰 While good for the headline, analysts expect Pfizer’s revenue to be hardly impacted since:

• Pfizer has little exposure to the Medicaid market, with it only accounting for ~5% of sales, with most of its revenue coming from private insurers and employer plans

• On new drugs, Pfizer can just set higher prices on its European drug launches so it can maintain high prices in the US.

😮‍💨 In exchange for the deal (plus a $70 billion commitment to spend on US manufacturing), Trump agreed to give Pfizer a 3-year break from drug-tariffs.

🚀 And while Pfizer is the one with the deal, Trump said other drugmakers are negotiating similar deals, so the announcement helped trigger a rally across the sector.

🤔 So does this mean Pfizer and drug stocks are a good buy? Before we dive into what the experts are saying about that, a quick word from this week’s sponsor, Purpose Investments!

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TOP STORY CONT.
💊 Can the Drug Stock Rally Last?

👀 For many tech-focused investors, drug stocks may have been out of your radar, so with the recent rally, are they worth a second look?

📊 Well from a valuation perspective, there’s a lot to like. The S&P 500 Health Care sector has a forward Price-Earnings ratio (a common measure of how expensive a stock is) of only 17x, compared to 30x for the overall S&P 500.

⭐️ Stocks like Pfizer trade at a forward PE of only 8.6x, generally considered a ‘dirt-cheap’ valuation.

❌ But despite the low PE, some analysts think drug stocks are ‘value traps’, pointing to some of the deep fundamental issues the industry faces:

• Many drug companies face ‘patent cliffs’ for important products, meaning competitors will soon be able to sell cheaper knock-offs of their flagship drugs. For example, Analysts expect a 13.3% revenue hit for Pfizer by 2030 as some of its key patents expire.

• Stocks like Pfizer are seeing revenue diminish post-COVID as sales dry up for their money-printing COVID vaccines

💊 So while the announcement this week eases a massive worry for drug stocks, whether companies like Pfizer can continue the rally will likely depend on the success of new drugs in their pipelines and the rally continuing shouldn’t be taken as a given.

🎯 As for me, I don’t have the time to properly research who I think the healthcare/pharma winners will be, but I do think the sector has been overlooked and oversold amid the tech rally, so I’ve opted to build up some Healthcare exposure through a HHL, a Healthcare ETF, which makes up ~3% of my portfolio.

💬 But as always, I’m curious to hear your thoughts about the Pharma/Healthcare on Blossom! I’ll make a discussion post later today - make sure you follow me to join the convo.

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FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

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