Markets fell on Friday to end the trading week on a down note. The yield on the 10-Year Treasury moved up sharply as the January BLS Jobs report showed 517,000 jobs were created in the first month of 2023 and the unemployment rate fell to 3.4%. This number was far above anyone's expectations. This fanned fears that the Federal Reserve has further work to do getting inflation under control.
However, I would take this BLS Jobs report with a massive grain of salt. It contained significant annual and seasonal adjustments and also reported nearly five times more jobs created in January than the ADP report that came out Wednesday.
The Household Survey has also consistently shown that almost all the jobs 'created' in the economy since March have been of the part-time variety. Finally, these numbers fly in the face of the widespread layoff notices we have seen in the past month or so across the tech industry, at Wall Street banks and many other sectors of the economy.
Even with the pullback on Friday, the S&P 500 was up 1.6% on the week, its fourth weekly gain in the first five weeks of 2023. The Nasdaq was up more than double that and has quickly recovered approximately half of its deep losses in 2022 in 2023. My regular readers know that I don't think this rally has much legs left. However, with a huge cash position within my portfolio, thanks to recent covered call expirations, I have plenty of 'dry powder' to put to work. Therefore, I am consistently on the hunt for new opportunities as I believe the overall market is more than fairly valued.
Here are a couple of moves I made last week within my own portfolio. I added a starter position in off the radar therapy reformulator Citius Pharmaceuticals (CTXR) . This small-cap biopharma is focused on the development of therapies that are typically reformulations of previously approved drugs and in some instances, leverage the FDA's 505[B](2) pathway to quicker approval.
The company has a market cap of only approximately $200 million. Citius has two later-stage programs, one undergoing Phase 2 assessment, and two in preclinical development. The company's lead asset is I/ONTAK, an intravenously administered interleukin-2 diphtheria toxin fusion protein for the treatment of patients with persistent or recurrent cutaneous T-cell lymphoma [CTCL].
There are 30,000 to 40,000 patients living with CTCL in the U.S., of which ~10,000 are of the relapsed/refractory variety, requiring systemic treatment. The company's marketing application for the compound has been filed and I/ONTAK will be spun out as a separate entity should garner FDA approval in late July.
I/ONTAK will compete with a couple of drugs on the market but the company believes there is a $300 million to $400 million. Citius is planning to have I/ONTAK spun out as a separate entity. This will resolve funding issues and help build out the sales force around I/ONTAK. It will also allow Citius to focus on the other candidates in its pipeline. This is somewhat of a high beta play, but I think CTXR is nice 'sum of the parts' story and I have initiated a small initial position in this name.
Truer to my bearish bent on the current state of the market, around the same time I bought some just out of the money puts on the iShares Russell 2000 ETF (IWM) with July expirations. The small-cap benchmark is up nearly 14% in the first five weeks of 2023 and over 20% from its lows late last summer. With economic conditions challenging, inflation still high and amid rising interest rates, I believe the Russell will give back a third or half those gains when the 'Hopium' comes out of equities sometime over the near term horizon. Ironically, the covered call positions I bought near the Russell's bottom late in September are tracking to expire deep in the money in mid-March.
And that is how I am going both ways in what I view as an overbought market within a deteriorating economy.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider CTXR to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
