Tuesday, March 31, 2020

These Stocks Are Just What the Doctor Ordered

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What’s happening: US stocks have given investors a terrifying rollercoaster ride this month, amid the coronavirus outbreak and various government initiatives to calm the markets. The CBOE (Chicago Board Options Exchange) Volatility Index, a popular measure of stock market volatility, surged to a record high earlier in March with stocks plummeting deeper into a bear market.

Pharma stocks in focus: The Dow gained 3.19% yesterday to close trading at 22,327.48. The performance of this blue-chip index was driven by pharma stocks, with a spike in shares of Johnson & Johnson and Merck & Co.

While many companies have temporarily shut their businesses and withdrawn their outlook, the coronavirus crisis has thrown up opportunities for pharma stocks.

Details: Johnson & Johnson announced a vaccine candidate for coronavirus on Monday. The pharma giant has been working on the vaccine since January and has committed more than $1 billion through a partnership with the BARDA (Biomedical Advanced Research and Development Authority) to research, develop and test the vaccine.

J&J disclosed plans to expand its manufacturing capacity for the speedy development of the vaccine. The drug maker expects to begin human clinical trial by September and has plans to supply more than one billion doses globally.

The company’s unit Janssen also recently announced Health Canada’s approval of Cabenuva for the treatment of HIV.

On Saturday, Merck & Co. disclosed that its investigational drug, vericiguat, for chronic heart failure patients, has met the primary efficacy endpoint in its VICTORIA Phase 3 trial. The drug is being developed in collaboration with Bayer AG.

Earlier this month, Merck had also announced that the phase 3 trial of Keytruda, for the treatment of adult patients with relapsed or refractory classical Hodgkin lymphoma, had met one of its dual primary endpoints of progression-free survival.

This pharma major’s dividend yield is current at 3.4%, much higher than the average 2.4% yield of the S&P 500 to which it belongs.

How shares have performed: Shares of J&J spiked 8% yesterday, while Merck’s stock jumped 7.3%, strongly contributing to overall market gains.

J&J’s shares have climbed about 20% over the last five trading days and are down only 1% in the month, while shares of Merck have climbed around 16% in the last five trading days and have gained 1% in the month, despite markets witnessing heavy selling.

The Markets Today

     

Crude oil will be in focus today, with oil prices hitting an 18-year low on Monday.

Context: Crude oil plunged to a record low in the previous trading session with coronavirus lockdowns dampening the overall demand for energy. The increase in oil supplies following the price war between Russia and Saudi Arabia also contributed to the decline.

Details: Oil futures in London nosedived 9% to their lowest level since March 2002. US President Donald Trump made some initiatives to stabilize the oil markets by speaking with Russian President Vladimir Putin, but the efforts failed to control the decline in oil markets.

WTI crude had fallen below $20 per barrel at one point during the trading session but rose to settle slightly higher than this psychological resistance level.

A massive oversupply of oil is exerting pressure on the oil markets. The oversupply is such that countries are expected to run short of storage facilities. On the other hand, demand for oil is expected to weaken, as coronavirus cases continue to rise across the world. The coronavirus and lower demand have forced some refineries to shut their operations, but this has not lifted prices.

In the European session, WTI crude was trading higher by 5.1% at $21.12 per barrel, while Brent crude had risen 2.4% to $27.04 per barrel.

Why it matters: Crude prices are on course to recording their worst quarter in history. Goldman Sachs expects a decline of 26 million barrels per day in oil consumption by this week. However, Moscow and Riyadh are not showing any signs of backing out from their supply war.

What to watch: Crude oil is trading higher in the European session and investors are expecting the positive momentum to continue in the US session. Investors look for any signs of the oil price war abating soon. A decline in coronavirus cases will also help energy markets to regain their upward momentum.

Other Market: European indices were trading higher at 9:00am GMT, with the FTSE 100, German 30 and French 40 up 2%, 2.5% and 1.5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

India’s infrastructure output, central government budget value and total external debt, Brazil’s unemployment rate, net payrolls, federal tax revenues and government budget value, South Africa’s balance of trade, Canada’s GDP, producer prices and raw materials prices as well as the US Redbook index, S&P CoreLogic Case-Shiller home price index, Chicago PMI and Conference Board’s consumer confidence index.