In the "Trump trumps all" news analysis, the striking runup in drug stocks started after he met with drug execs on Jan. 31. After that meeting, the "era of good feeling" began, those who use the Trump filter say, and the group hasn't looked back.
Now as is always the case with these matters involving Trump, there is some truth to the affiliation of Trump and the bottom.
Shorts built up positions ahead of the meeting, because it seemed a natural. After all, Trump had campaigned against the outrageous sums the U.S. government paid the drug companies and talked about the notion of putting them to the Art of the Deal test.
But the drug companies came to Washington with some powerful statistics about how they are the good guys when it comes to employment -- and with Trump, that's what really matters. After the meeting, he seemed to go out of his way to praise these execs, and it did matter. It helped that they had taken action ahead of the meeting to pledge to limit increases to below double-digits, an outrageously large sum for pretty much every industry out there, from semiconductors to container board, but it resonated after that Martin Shkreli-induced price increases and Mylan's (MYL) EpiPen fiasco.
The drug companies jumped off the hot seat, and it was on to the next big thing for the job crusader -- causing a brief covering wave that signaled the bottom for the group.
But a bottom and a ramp aren't the same thing. If you study the incredible gains in Merck (MRK) , Lilly (LLY) , Pfizer (PFE) and Johnson & Johnson (JNJ) , among others, you are struck by one thing -- and one thing only: In the end, these stocks fulfilled their pre-Trump goals as bond market equivalents.
These stocks, correctly, followed bonds and participated almost one-for-one with the rapid decline in yields -- and they resumed their roles as the place to get income. Now I think some of this move is a mistake in judgment ,based on the essence of the bond rally, which, I believe is based on the paucity of global yields. The insanity of Germans buying $4.4 billion of two-year bonds this morning at a negative 0.92 rate -- with tons of interest, mind you -- should make any prudent German investor call JP Morgan and say "get me some U.S. bonds." Warren Buffett called out the lunacy of this so-called investing method just yesterday.
Incredibly, though, the bond-market-equivalent stocks only focused on the decline in yields, presuming a slowdown, not on the lack of investing alternatives. That's a first. The rally in these stocks did not coincide with economic weakness. If anything, it is likely we get a rate hike when the Fed meets this month.
The move up also had nothing to do with the substance of the situation. This Johnson & Johnson at $122, where there seems to be no supply, is the same Johnson & Johnson at $111 that you couldn't give away.
Oh and to be sure, I am not talking about Valeant (VRX) when I talk about these drug stocks. Today's earnings report showed me that they have real concerns on declines and weaker drug sales. Don't include that one in the discussion. That's a suboptimal situation.
I know that I have spent a ton of time of late trying to explain how wrong it is to be totally Trump-centric -- which is not easy, when he spends so much time with execs and gives speeches like the one tonight that "define" his presidency, including his current stance on pharmaceuticals.
But let's recognize that some moves are simply related to bonds -- and bonds aren't in the grips of the economy, they are in the grips of a bizarre developed-world bond shortage. Once you grasp that, you can understand what's really going on -- and not just what the media claims is going on -- with this sector and so many others that are thought to be Trumped at all times.