Here we go again: Drug stocks rally but is that a reaction to merger news or a sign that investors are getting more defensive?
09/29/2009 6:50 pm EST
Now today's strength in the sector on a down day for the market as a whole could just be a reaction to the big acquisition news from Abbott Laboratories (ABT). Nothing like a big deal to remind investors that this sector is still consolidating and that there are more deals to come so hop on now.
But drug stocks are also one traditional haven that investors seek when they get nervous about stocks and their valuations.
That's especially in play right now because drug stocks have lagged this rally and they are therefore relatively cheaper than usual.
Of course, some would argue (Me! Me!) drug stocks should be relatively cheaper since the industry still hasn't figured out a way to recapture anything like its historic rates of growth.
But,whatever the reason, money is flowing into health care and drug stocks again. The Healthcare Select SPDR (XLV) is closing in on its highest level in 11 months, for example. Baxter International (BAX) is at a six-month high and Bristol Myers Squib (BMY) is on the edge of a technical chart breakout.
It's worth noting that these two stocks are more frequently mentioned as acquisition candidates than as acquirers.
Again. Don't make too much of a one day pattern. But the trend is worth watching as an indicator of market direction.