Scott Bessent’s Surprise Bond Move Helped, But Moderna Does the Heavy Lifting
The indices held up on one biotech breakthrough while the Nasdaq lost ground.
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Investors were surprised Wednesday by news that the U.S. Treasury will support some long-term bonds starting in September, a move clearly driven by concerns that those bonds are nearing their lowest levels in many years. The news triggered an early surge, but the excitement faded during the day.
At the closing bell the S&P 500 was up a meager 0.2% and the Nasdaq 100 (QQQ) actually lost ground. Breadth was 56% positive and small caps led.
Moderna Carried the Tape
The numbers would have been considerably worse without the excitement over Moderna (MRNA), which surged more than 170% on results from a cancer vaccine developed in partnership with Merck (MRK). The biotechnology sector (IBB) was lifted about 7% on the news.
The vaccine, called intismeran autogene, is built from a sample of the patient’s own tumor and encodes as many as 34 mutations specific to that person’s cancer, training the immune system to recognize it. Given alongside Merck’s Keytruda in 1,137 patients with surgically removed melanoma, it met its primary endpoints for recurrence-free survival and for keeping the cancer from spreading. It is the first personalized mRNA cancer vaccine to succeed at this stage of testing.
There is plenty still unknown. The companies did not release hazard ratios or survival data, and no approval timeline was given, though Merck said it expects to begin discussions with regulators in the coming months. The same approach can be used for in testing for lung, bladder, and kidney cancer so the market opportunity is very large.
What makes the move remarkable from a market standpoint is that nobody on Wall Street saw it coming. Of the 24 firms covering Moderna, 22 had it rated hold or worse, and the consensus price target was around $55. The stock finished the day around $174 and cleared every target on Wall Street in one session. Short interest sat at 13% of the float, so there was fuel underneath the move.
Rotation Hides the Weakness Again
Once again we had rotational action that boosted the indices and covered up some weak action underneath. One stock and one sector carried an otherwise soft session, and the Nasdaq still finished lower.
This has been the defining feature of the entire year. Money finds somewhere to go, the indices absorb the damage, and the average stock does not participate in either direction. A biotech breakthrough is a better justification for it than most, but the mechanism is the same one that has been masking narrow participation since June.
Does This Change Anything?
The question now is whether this upbeat action changes the picture. It is possible, but my view that we are entering a seasonally difficult period is not changed by one biotech catalyst.
The Treasury move deserves more thought than it is getting. Scott Bessent stepping in to buy back long-dated bonds does not inspire confidence in the economy. It is a response to a problem rather than evidence that the problem has been solved, and the fact that the equity reaction faded through the session suggests the market reached the same conclusion.
Game Plan
My positioning has not changed. Cash is high, I trimmed a few biotech names into strength on Wednesday morning, and I am looking for entries rather than making them.
September is historically the weakest month of the year and October is when turns tend to occur. Nothing that happened on Wednesday alters that calendar. What the day did provide is a reminder that the opportunities in this market are still there for anyone doing the work on individual names, which is where my attention stays.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
