I'm Getting Defensive on My Stock Shopping as CPI Lands Hot
Here are some updates to my list, as a favored biotech hits a bump.
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The consumer price index report surprised investors on Wednesday morning with slightly hotter numbers than expected. It was just a small uptick in the core number, but many investors were looking for additional softness to push the Fed to cut by a half-point next week. Instead, bond yields ticked higher, and odds of a half-point cut fell to just 15% from 50% a month ago.
A quarter-point cut next week isn’t bad news. This means that the economy is still strong enough to avoid a recession, but "sticky" inflation is not a headline that anyone wants to see. The worst-case scenario is that inflation will stay sticky as growth slows, which will cause some concern about stagflation.
Unfortunately, the CPI news is hitting when the market is technically already quite vulnerable. There has been a weak bounce over the last two days, and now the lows that were hit on Friday are in play. Key support for the S&P 500 is 5402, and it will cause some concern if it is tested.
Small-caps on the Russell 2000 are already under Friday’s lows and are lagging badly. As a result, breadth is running more than 2-to-1 negative.
I continue to maintain a very defensive stance right now and am in no rush to do any significant buying. The top names on my shopping list right now are TG Therapeutics TGTX, Rocket Labs RKLB, and Viking Therapeutics VKTX. Given market conditions, I don’t think any of them are going to run away right now, so I’m not rushing to add to my positions.
One of my favorite small-cap biotechnology names, Humacyte HUMA, has been having a very rough time lately since the Food and Drug Administration delayed responding to the company's biologics license application for a product that would be used in the treatment of vascular trauma. The delay is likely an administrative matter at the FDA, and management remains confident that approval is coming in the weeks and months ahead, but the uncertainty has weighed heavily on the name. In addition, the husband of the CEO, who is an investment banker and helped design the special purpose acquisition company that took the company public, has been a steady seller of the stock. That is likely due to some very extensive financial obligation rather than fundamental issues at the company, but the timing couldn’t be worse.
The stock is starting to look washed out at around $5, but it can easily languish for a while as investors grow impatient while waiting for the FDA. The company is ready to start sales the minute the FDA acts and is already making progress on other indications, but the uncertainty of the timing keeps buyers on the sidelines.
It is looking ugly out there right now. Cash and vigilance are the best way to deal with this action.
At the time of publication, DePorre had positions in TGTX, RKLB, VKTX, HUMA and HUMAW.
