Investors who tried to time a bottom in oil over the last few months got an early lump of coal in their stockings. U.S. and Brent crude both plunged to new lows this week, taking the markets along for the ride. And, next week the Federal Reserve meets to lay out their latest plans for short-term interest rates. While a hike this month is largely expected by market participants, it’s the clip at which interest rates will rise over the next few years that has investors on edge.
Combined, investors are spooked. There’s no sign that the over-supply of oil, which has kept prices low all year, will let up any time soon: OPEC said last week that they don’t plan to cut production any time soon. And low oil has high-yield debt players skittish, fearing that leveraged energy companies won’t be able to stay on top of their debt. That fear was exacerbated Friday by news that a junk bond-centric mutual fund, Third Avenue’s Focused Credit Fund, will halt investor withdrawals while it liquidates (with some caveats, namely concentration in a few illiquid holdings and over-exposure to the worst-of-the-worst debts).
The S&P 500 (SPX) fell 4% this week, its biggest 5-day decline since mid-August and the beginning of the September/October slump for equities. Friday’s close put the index right at a level watched by many on the street, at 2020.
To be clear, oil, energy stocks, and junk bonds have all been routed over the last 18 months, so this week didn’t represent anything particularly novel. Still, it’s perception that matters. Expect volatility into the FOMC meeting this Tuesday/Wednesday, but there might be an opportunity for some quick longs as sentiment reaches a short-term extreme on the negative side. Any time the financial media is in a tizzy over one thing – high-yield debt – the smart money looks at the other side of the trade – right now, that’s the long side. Proceed with caution.
At PropThink though, we’ve spent the last two weeks neck-deep in medical data from the American Society of Hematology’s (ASH) annual meeting. Among the biggest losers this year: bluebird bio (BLUE), Agios Pharmaceuticals (AGIO), and Global Blood Therapeutics (GBT).
BLUE has now round-tripped completely since this time last year, from $50 to $190 and back to $50 almost to the day from a year ago at ASH.
We’ve written at length about BLUE over this time, and you can read what we think of the equity now in our latest update. In short, it’s early to get long, but we think as the sex appeal wears off (bluebird has plenty of work to do improving on LentiGlobin) the stock gets much more interesting.
Also at PropThink, you can read our coverage of Bellicum Pharmaceuticals’ (BLCM) results at ASH. Though the market will take time to define, BPX-501 may make for an interesting improvement on hematopoietic stem cell transplants, which are curative in a handful of rare blood disorders and hematologic malignancies.
Even a casual biotech observer will be interested in a convoluted press release from Oncothyreon (ONTY) this week, arguably the most obtuse press release of 2015. Then, read “Bewildered By Oncothyreon? You Weren’t Alone“, our summary of the company’s latest update at SABCS this past week.
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