Interview: Drug stocks
>> on the economics front, u.s. whole sale prices rose in january led by higher costs for cigarettes, cars and trucks. core producer prices, excluding food and energy costs, were up .8% last month, the sharpest jump in more than six years and higher than the average forecast by economistsr. the gauge overall up by .3%, matching forecasts. consumer confidence maygating, the university of michigan consumer survey has it down a full point from january’s measure. bond market reaction was all about inflation today and weakness was the tune. yield now up to 4.26 at the 10-year -- stocks were little changed statistically, the indexes here today but the main driver in the market was drugs and energy stocks surging in the face of weakness in financials. brian pears, head of equity trading at victory capital management, joins us from cleveland to discuss the outlook for the market here today. brian, you can’t not look at energy and drug stocks. energy has been steady and chugging along and now drug stocks, some have been saying, well, prior to today, it’s time to look at drug stocks so if you had missed out on energy and drug stocks or energy, you’re sunk and now you have drug stocks. how do you play this volatile, narrow, advancing market ?
>> you know, it’s been a very difficult market to play, matt. really, before today, energy worked fairly well, utilities had a rough day today but utilities have worked well. material stocks have come on of late with the dollar weakness and today with the inflation news bullish for inflation anyway. i don’t know how you play this market . we bumped up earlier this week against the 52-week highs on most of the mange indices but -- major indices, but it’s been such a narrow rally, if you’re in the wrong groups, you’re suffering.
>> if you look at the weekly take on the s&p 500 industry groups, there are a few movers all total for the week but the reality is, it’s focused on energy, up 4.5% on the week and materials, pharma and biotech coming on a little bit thanks to today, up 1.4%. i guess i’m trying to get more specific. are there strategies or do you just―since you can’t know what’s going to be the hot group, do you try to get in when it’s moving and take a little nibble on a hot group?
>> energy is probably the best place to start with to talk about that. really, middle of last year when oil started to take off, people moved into energy stocks. the commodity rallied up to $55 a barrel in terms of oil. and there were a lot of doubters about the long-term―longevity of the move in oil prices or in energy. i think what we might be seeing is some sort of a secular rotation into energy stocks and materials probably, as well, two groups that for a long time have been underrepresented in the s&p 500 in terms of sector weightings for the past 20 years, in fact, and they have really suffered at the hands of financials and technologies and what-not. i think what we’re seeing is probably the unfolding of a long-term shift out of financials and technology stocks, into energy, into materials and you’ll get short-term moves but the major trends seem to be in place now.
>> brian, i need you to clarify one thing. energy has been the hot group for more than a year. it’s been the top performer by almost any measure, year to date, one week, one month, 12 months, six months. so why is it suddenly people returning to energy? i would assume they’re already there if it’s on top?
>> it’s really a question of the time frame over which we’re talking about this, of course. when you look at it over the course of the year, the groups have done better, the performance in the market has been in energy stocks but in terms of sector representation, for example, those who invest by owning what the s&p 500 owns, they’re still underrepresented relative to financials. financials are still around 25% of the s&p 500 in terms of their representation. energy is still down in the 10% range, maybe slightly higher than that so that if you want to talk about a secular move out of financials where financials over the long term suffer and into energy stocks, you’ll probably see people own more just like definition.
>> this is a case of apples and oranges, folks, because brian is talking about the economic sectors, there’s 10 of those and under that the financials account for 20% of the s&p 500 and energy would be the seventh largest weighted group for about 8%. as you said, about 8% more. so, the financial thoughts, inflation a huge story today?
>> definitely a huge story. there have been hints of it of late. we’ve worried that the fed may be hinting more about inflation being a problem going forward. i think we all have to look for the reaction in the bond market . a tough day today on inflation and the bond market will guide that discussion.
>> brian pears, appreciate it, head of equity trading at victory capital management. a number of companies have announced spinoffs of their businesses―american express and sara lee to name a couple. we’ll discuss that and more next.
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Listen Market briefing --- Matt (slow)
Vioxx --- Peter (slow)
NYSE --- Deb (slow)
committee ruled that the company’s vioxx painkiller, which was withdrawn september 30, the largest drug recall ever, the panel ruled it offers enough benefits to support its sale in the u.s. meanwhile, the f.d.a. says pfizer’s celebrex, the world’s best-selling prescription arthritis drug, should carry the stiffest label warning saying the medication elevates the heart attack risk and risk of stroke. pfizer shares up 7% today. peter cook will join us from the f.d.a. in maryland in a moment with details. first, let’s bring you the closing numbers on wall street, the dow up 30 points, pushed in large part by merck. s&p also higher today, just barely, though, and the nasdaq finishing down .1%. for the past five days, consecutive decliners there, as you see, three red arrows, .1%, .3% and .8% lower. off to maryland, f.d.a. headquarters, with peter cook standing by as we wrap up the celebrex-vioxx day.
>> here in gaithersburg, maryland, where the f.d.a. advisory panel has been meeting looking at the scientific and medical evidence at the risks associated with cox-2 drugs, so-called painkillers. they recommend that vioxx, which merck pulled on september 30, and pfizer’s two drugs, celebrex and bextra, should remain on the market but with new restrictions on their use, labels and advertising. if the f.d.a. accepts the recommendations, it means that vioxx could return to the market despite evidence it raises the risk of heart attack and stroke in patients taking the drug for longer than 18 months. some panelists said vioxx’s benefits for specific patients convinces then it should be on the market .
>> vioxx is the only thing available for pediatric g.r.a. and since our major risk is cardiovascular, i’m persuaded by the argument that i would hate to remove something that would benefit a population at a low cardiovascular risk.
>> the panel concludeed that celebrex and bextra from pfizer should stay on the market with restrictions. the vote for celebrex was 31-1 in favor. the margin for indexra was -- bextra was 17-13 with two abstentions.
>> the powerful commentary yesterday was public comments, rheumatologists, clearly desiring these therapies despite the risks. they want to deal with the risks but they want the pain relief so the f.d.a. will listen to the public as well as the panel and keep the drugs on the market .
>> that is the question, what does the f.d.a. do with the recommendations? generally speaking, the f.d.a. follows guidance of its advisory panels. merck has issued a statement saying merck has appreciated the opportunity to present data at the advisory committee meeting and they look forward to discussions with the f.d.a. when i asked the spokesperson how soon the painkiller could be back on the market , they said it’s too early to speculate.
>> thank you very much, appreciate it. we mentioned stocks here finishing on a down note or a mixed note or for a down week, deb kostroun has a wrap of the trading action with this report from the big board.
>> if we gave out an award for the most volatile stocks in friday’s session, it would have to go to the pharmaceutical stocks. all the news coming from the f.d.a. hearing in washington really moving around merck under pfizer on the day, especially earlier. however, by the close of trading, both stocks putting in a strong performance. in fact, that s&p pharmaceutical index, one of the biggest gainers behind energy in the s&p 500. speaking of energy stocks, some investors say that exxon-mobil xxon-mobil’s dethroning of general electric as the world’s largest company shows the importance of energy industry. the change in leadership comes after exxon-mobil shares rallied 14% this month compared to g.e.’s 1% drop. last month, g.e. led in market value by $49 billion. financial stocks, including bank of america, morgan stanley and citigroup, took a tumble for a third straight day on concern that alan greenspan will keep raising interest rates. a lot more concern following that report on inflation at the wholesale level. the p.p.i. core rate left .8% last month, its biggest increase in six years. what we saw on the day, treasury notes fell and yields rose.
>> in all the inflation numbers, they’re all moving higher, much higher than they were three months ago, six months ago and a year ago. today’s number might be overstated but it continues the trend we’ve seen.
>> merger fever continued with word that talks between may and federated department stores are back on. the “wall street journal” says the owner of macy’s and bloomingdale’s is close to striking a deal with may, the owner of lord and taylor and marshall field’s. shares of may rose as much as 7% on the news. the phone company that owns 82% of u.s. cellular corp. says it may want to buy the rest of the shares it doesn’t already own. telephone and data stock fell on news while u.s. cellular shares rose as much as 12%. i’m deborah kostroun at the new york stock exchange.
>> that’s the list of trading. let’s look at the over-the-counter markets here today. the nasdaq finishing down, the worst of the big three indexes today, down two points, .1% on the session. volume, the lightest of the year, the pundits tell me, at 1.6 billion shares. m.c.i.’s largest shareholder is undecided on the merits of a merger with verizon. the news comes after qwest says it might sweeten its competing offer for the long-distance carrier. bob bowden joins me now with more on this merger triangle in telecom. bob?
>> thank you, mr. nesto. carlos slim is the mexican billionaire who is,000 m.c.i.’s largest shareholder with a 13% stake. his spokesman on friday said this, we are studying very carefully the deal. we prefer to make a comment whenever we are ready. earlier, qwest c.e.o. richard notebaert confirmed that m.c.i. hadn’t responded to his original acquisition offer, writing in a letter yesterday to m.c.i. directors -- qwest said regulators would approve its merger with m.c.i. at least six months sooner than it would approve a verizon purchase, although that was questioned by legg mason analyst blair levin today. qwest c.e.o. notebaert said m.c.i. shareholders would own 40% of the shares if that merger happened compared to m.c.i. shareholders owning 5% of a verizon-controlled company. tim gilbert said moment sum certainly shifting back towards qwest. qwest now stands at chance of at least making verizon return to the table. could qwest substantially increase its offer for m.c.i.? that’s the word used by u.b.s. analyst in a note citing qwest management as having indicated they had arranged financing to support a substantial increase. on friday, m.c.i. shares rallying on talk of the increased offers for its business to the tune of 8% in that straight-line intraday rise. as for the suitors, qwest, the company attributed to having momentum, up almost 3% on the day with verizon shares down 1%. matt nesto, back to you.
>> thank you very much. in other news, the former c.f.o. at boeing was sentenced to four months in prison. michael sears convicted of deceiving the government by offering a job to a pentagon official as they negotiated a $23 billion defense contract. sears was also ordered to pay $250,000 fine and he’ll perform 200 hours of community service. he pleaded guilty november 15 to conspiring to violate federal conflict of interest laws in his employment talks with former air force weapons acquisition chief darlene druyun who herself is prison time, nine months’ worth. boeing shares today, long since separated from these two, down 1.6%. when we return, we’ll get a trader’s perspective inside today’s market action and look at where stocks will head in the future. brian pears with victory capital management is our guest after the break.
