The most important number in finance is rising again... A rare bullish sign for 2018... 'Big January' says stocks are going higher... Amazon sets its sights on health care... The next big biotech rally could be underway...
The most important number in finance continues to tick higher...
The yield on 10-year U.S. Treasury notes – which influences borrowing costs across the economy – jumped to 2.75% today. It last touched this level nearly four years ago, in April 2014.
The 10-year yield is now up 70 basis points since bottoming last November, and more than 30 basis points this month alone. At this rate, it could cross the widely watched 3% level in a few months. As Bloomberg reported this week...
For over a year, range-bound Treasuries helped keep financial markets in a Goldilocks state, with interest rates slowly rising due to favorable forces like stronger global growth and the Federal Reserve spearheading a gradual move away from crisis-era monetary policy.
Yet the start of 2018 caught many investors off guard, with the 10-year yield on pace for its steepest monthly increase since November 2016... Suddenly, they're confronted with thinking about what yield level could end the good times seen since the presidential election. For many, 3% is the breaking point at which corporate financing costs would get too expensive, the equity market would lose its luster, and growth momentum would fade.
In the meantime, the 'Melt Up' rolls on...
And if the little-known "big January" indicator is correct, it's likely to defy rising rates for a while longer.
According to Jeffrey Hirsch, editor of the Stock Trader's Almanac, a big January is any January where the S&P 500 gains 4% or more. They're relatively rare – we've seen just 26 of these Januarys over the past 90 years – but they have been undeniably bullish for the market when they occur.
Since 1930, stocks have gone on to close the year in positive territory 95% of the time following these months, for an average gain of 15.2%. Since 1950, the big January track record is even better... Stocks have closed the year in the green 100% of the time – including 1987, when stocks crashed nearly 25% that October – for an average gain of 22.5%.
As we write, the S&P 500 is on pace to close with a gain of more than 5% this month.
As always, we never recommend making investment decisions based on any single indicator alone...
But this month's big gain joins several other reliable long-term indicators that remain bullish today. This suggests any near-term pullback will be a correction in an ongoing bull market, rather than the start of a more serious decline.
Yesterday, brought big news for America's troubled health care system...
After years of speculation, online retailer Amazon (AMZN) is officially getting into the business.
In a joint statement, the firm announced it is teaming up with Warren Buffett's Berkshire Hathaway (BRK) and investment bank JPMorgan Chase (JPM) to form a new, independent health care provider. As Bloomberg reported...
Health care spending was estimated to account for about 18% of the U.S. economy last year, far more than in other developed nations. Despite efforts to curb costs, studies suggest that U.S. doctors and hospitals continue to provide too much health care.
In a survey of physicians' perspectives published last year in the journal PLOS One, the average estimate was that 20% of medical care was unneeded, including about a quarter of tests, a fifth of prescriptions, and more than one in 10 medical procedures.
"The ballooning costs of health care act as a hungry tapeworm on the American economy," Buffett said in Tuesday's statement.
The press release didn't offer many details, but one thing was clear...
This venture could massively disrupt our country's bloated and bureaucratic health care system.
Like many of Amazon's other business ventures, this one doesn't need to turn a profit. In fact, it doesn't even intend to. Its singular aim is to lower health care costs for the three firms' 500,000-plus U.S. employees. And if successful, it's likely to grow quickly.
This would be welcome news for consumers and employers alike. But it could be a big problem for health care "middlemen" like pharmacy benefit managers ("PBMs") and some health insurers.
This fact wasn't lost on the market... PBM companies CVS Health (CVS), Walgreens Boots Alliance (WBA), and Express Scripts (ESRX) were down 4%, 5%, and 3%, respectively. Health insurer Cigna (CI) – which provides health benefits for JPMorgan – fell about 7%.
Again, the news wasn't entirely unexpected...
Companies have been talking about increased competition – as well as growing political pressure on health care costs – for some time. And we've already seen a wave of consolidation and cost-cutting across the industry. Just last month, CVS announced it was buying health insurer Aetna (AET) for $69 billion, in one of the biggest deals of 2017.
Now that Amazon has made it "official," you can expect this trend to accelerate.
But health care isn't the only industry in 'consolidation mode' these days...
Desperate to add more profitable drugs to their portfolios, biotech giants have also been announcing major deals of late.
In the January 23 issue of DailyWealth Trader, our colleagues Ben Morris and Drew McConnell described two recent multibillion-dollar mergers that were announced earlier this month...
First, $111 billion French drug maker Sanofi (SNY) announced an $11.6 billion deal for U.S. hemophilia specialist Bioverativ (BIVV). The company said this move will strengthen its position in the treatment of rare diseases. Bioverativ shares jumped more than 60% yesterday morning on the news.
Next up was $81 billion biotech firm Celgene's (CELG) deal to buy Juno Therapeutics (JUNO) for $9 billion. Juno is developing medicines that modify patient immune cells to treat cancer. The deal will expand Celgene's portfolio of blood-cancer drugs. And it may add a lymphoma treatment that Juno is awaiting approval for. The news sent Juno's share price 27% higher yesterday morning.
Ben and Drew believe that this is a bullish sign for the biotech industry going forward...
Big mergers mean more deals, more investments in new technology, and more investor money flowing into the sector. As they explained...
More biotech deals are likely on the way. This fits in with what we've seen from the sector in the recent past...
Last year, for example, biotech firms spent a total of $4.7 trillion on M&A. Aside from the $4.9 trillion they spent in 2015, it was the most money spent on biotech M&A in the last 12 years (as far back as we have data).
The number of biotech M&A deals is rising, too. In the chart below, you can see that nearly 30,000 deals (big and small) were finalized in 2017, more than in any other year...
In August, Ben and Drew recommended a simple, "one click" way to profit from a bull market in biotech stocks. DailyWealth Trader subscribers are up 13% so far, but they remain bullish today.
In fact, they believe the next leg of the biotech rally is just getting started... And for now, their recommendation is still in buy range. Learn how to access this trade – and all of their premium research – right here.
New 52-week highs (as of 1/30/18): Amazon (AMZN), KraneShares E China Commercial Paper Fund (KCNY), and New York Times (NYT).
A busy day in the mailbag: More feedback on Steve Sjuggerud's China research... praise for Porter's new book... and differing opinions between two longtime subscribers. Send your notes to feedback@stansberryresearch.com. Good or bad, we read them all.
"I have been following True Wealth China Opportunities since June of 2017. I am very satisfied with the results. I am up 31%, 32%, 33%, 36%, 73%, 76% and 92%. This is the best return I have received since I first started with Stansberry in 2008. Steve's Melt Up Millionaire has also been very good so far. Thank You Steve!" – Paid-up Stansberry Alliance member Gary H.
"I wanted to offer some comments in support of Steve's invaluable input on the growth potential that is China. I not only took a serious position on his recommendations (4% of my portfolio) but I also visited China last year by air, train, car, and cruise ship (on the Yangtze river) with a small group of seven traveling together and witnessed first hand the incredible build-out of that country.
"It's not the China you expect. From the Bund in my Waldorf Astoria room overlooking the river I could see the impressive new financial district Steve mentioned earlier that was simply incredible in size and magnitude, including the nightlight scenes on all the skyscrapers and the river boats lit up at night. I happened to count one night, no less than 23 barges on the river floating like a freight train toward the ocean carrying coal and returning same, the next day empty. This repeated itself every day.
"I also had an opportunity to visit Beijing, Xian, Chengdu, Chongqing, The Three Gorges, Yichang, and my favorite Shanghai with college educated guides in each city who spoke very good English. These guides had to be pre-qualified by the government to be professional guides (a very high paying occupation in China) to discuss the history of China (all the dynasties and culture changes) while we visited these cities including must see historical sites. We ate with these guides by design in all the local restaurants, avoiding as much as possible the tourist venues. [We] witnessed no paper monies exchanging hands by the locals in the major cities of Beijing, Chengdu, and Shanghai, but rather WeChat Pay and AliPay's monetary transactions. The guides mentioned that this was their normal in place of paper currencies. I made a point of discussing this with the guides and in particular, Tencent, Alibaba, JD.com, and Badiu and they were impressed with my knowledge and interests. They simply couldn't believe that we knew as much about these companies as they did in using these products.
"All the guides I talked to had visited the U.S. on vacation (says something about their financial status to make these trips) and all had great comments to say about their visits. I saw a good number of new American and German cars everywhere in these major cities, but parking was a huge problem. It's difficult to comprehend that they did all these improvements in less than 20 years? Government controls obviously moved mountains of stifling regulations to make these realities happen, sooner rather than later.
"From my hotel room in Beijing, I saw workers building a huge complex of buildings covering an entire city block, working all day and all night with lights, 24/7 and weekends. Imagine that happening in America today? New buildings were being torn down right next to new ones going up. And all of them architectural gems in design and style. With a population greater than one billion, everything was huge, the size of the airports, the buildings and the expanse of the infrastructure including roadways, bridges and transportation. The new bridges on the Yangtze river were spectacular in size and of the latest modern designs. Everything was huge in size. I saw no birds (pollution issues?) and too many cars on crowded highways. My guides were young, well paid professionals yet they said they couldn't afford to live in these major cities and took public transportation to these cites from great distances; they transferred to rental bikes paid with their cell phones on arrival and left them anywhere for the next user. The apartments they did live in (we saw some of them with the guides) were all tall modern skyscrapers stacked together like gleaming small cities unto themselves. My overall experience was like visiting Paris decades ago for the first time.
"Incredible as it were in sites and delights, my investments in Sjuggerud's True Wealth China Opportunities also far exceeded my expectations; yet with so much more growth still to come. Sjuggerud's track record of recommending previous growth opportunities (the financial warrants +83% to mention one) encouraged me to jump at this opportunity when first presented... and I couldn't be more impressed by the results. My investments initially in Tencent (+74%) [and others] have focused new interest in China's growth potential. I'm very appreciative of [my Stansberry Research] lifetime membership and of Steve Sjuggerud's excellent advice through the years. Thank you, Steve." – Paid-up subscriber Thomas V.
"I received my copy [of Porter's The American Jubilee] last Thursday and started reading then finishing it Friday morning. In my opinion, to sum up the book: 'FANTASTIC.' The best $19 I've ever spent. Easy to read, meaningful and would recommend it to anyone who has ever considered investing in equities. Should be easy for the novice to understand and will not insult the experienced investor. Thanks Porter for making the book available." – Paid-up subscriber Rod N.
Porter comment: You're welcome!
"I am not happy that it took me THREE years to write this email, and I am sorry that it has... I have never spoken with a more PROFESSIONAL group of people in my entire business life than the customer service folks at your firm. Just another example of that was my conversation with Amy J. today who offered me great advice on how I might package some offerings you have for services that fit MY needs. Thank youAmy for your time and careful listening! You are wonderful.
"And finally, when I read some emails from some of your customers who complain about whatever, it makes me ill. I was in the investment business for 25 years and I met a LOT of people who were so called experts in their field from coast to coast and NONE of them even came close to the wisdom and advice I receive from all of you.
"I told Amy if only I had met you all 20 years ago when you started. I thank my lucky stars that on one particular day I opened a link on Yahoo (I think it was) and learned about you all. Thank you for being there for a half a million people and 99.9% of us will never complain because we know how much better you are than all the rest. God bless." – Paid-up subscriber Randy Olson
Brill comment: Thank you for the kind words, Randy. And thank you for your support. As we often say, subscribers like you allow us to spend our days doing what we love. Not everyone has the privilege to do well while also serving others. And we don't take it lightly.
"Porter, I went ahead and cancelled my newsletters subscriptions today with your team since you want to get out of the business. Good day." – Paid-up subscriber Brad Oler
Brill comment: Guess we can't win 'em all...
Regards,
Justin Brill Baltimore, Maryland January 31, 2018