Kristian Rouz — Wall Street ended Monday trading in the red, affected by the negative tendencies in the biotech shares, as well as frustrating news from select America's big enterprises. The Nasdaq Composite Index snapped its five-day sequence of gains, retreating slightly. Nonetheless, American stocks are still just below their historic highs.
In the past few days, news coming from the GOP camp has been increasingly alarming in regard to the much-publicized health reform, which the Obama administration boasts as its greatest achievement. As the last month's budget standoff has demonstrated, the widely acknowledged need for further cuts in the governmental spending might finally provide the conservatives with the legit reason to repeal the costly Obamacare.
As the health care law is now more likely subject of a revocation, possibly ending or severely impairing the flow of the government's money into the nation's medical facilities and related enterprises, many of them suffered losses in their stocks valuation.
Equities of the biopharmaceutical firm Amgen shed 3.3%, leading the retreat in the S&P 500 Index, after the federal watchdog postponed the review of their innovative skin cancer treatment method. The drug-maker Biogen Inc. extended their Friday's losses by 3.1% on Monday after having reported the lower-than-expected drug sales. Shares of Celgene Corp., which is in process of acquisition of Quanticel Pharmaceuticals Inc. with an advance payment of $100 mln, lost 3.4% after such a risky move, only promising to significantly advance their cancer study. After the merger deal between the generic drug maker Mylan N.V. and Teva Pahrmaceuticals Inc. failed due to the lack of traction in the board of the former company, their respective stocks dropped 5.7% and 4.3%.
Such massive losses in the health care may be attributed to factors both of purely market and of political nature. First, the biotech and pharmaceuticals have been the best performers among the US stocks this year so far, meaning they might have been slightly overbought, prompting investors to sell. Second, as the earnings season is nearing its end with the projected decline in the US corporate profits by some 2.8% annualized, some investors are cashing out.
However, the political factor has become the most troubling one recently. The House and Senate Republican lawmakers have sent clear signals they have come to a consensus regarding Obamacare, and it is not good news for the money-consuming Democrat initiative.
"It's imperative that (Obamacare repeal) be the focus for our reconciliation instructions," Jim Jordan (R-OH) said at a Heritage Foundation event last week. After some 50 unsuccessful Republican attempts to derail the Obamacare programme, now, as the GOP holds the majority both in the House and in Senate, they have a great chance to achieve their goal, provided the intra-partisan unity of opinion on the matter.
"We are committed to getting rid of this law," Jordan said. "So, let's make sure we keep this thing front and center in the political debate, put it on the president's desk (and) actually make him veto it."
Now, after the GOP House-Senate budget talks successfully ended on Monday, explicitly targeting Obamacare, health and biotech firms might lose the governmental funding. This is possibly a new trend, with the GOP holding the legislative majority, areas of the governmental-fueled growth are under a thorough scrutiny. That said, it is high time to sell assets in sectors, capitalizing on governmental programmes, biotech first in line.
The US economic expansion is going to further slow, however, as less governmental money will be supporting it. That means, the next round of the Fed tightening might be coming even later than we can now expect.
