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Clinton Sucker Punches Drug Stocks

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What's going on?

Hillary Clinton, possibly the next president of the US, is taking a hard stance on the price of drugs. She has laid out a strategy to limit the rising cost of pharmaceutical drugs – and shares of drug companies sold off big time as a result.

What does this mean?

It’s bad news for “biotech” stocks. Biotech companies use a more sophisticated and costly approach to developing pharmaceutical drugs, thereby making them more expensive than traditionally produced drugs. The biotech sector includes lots of small companies that essentially represent a bet on the success of a single drug. But it also includes larger companies like Gilead Sciences and Valeant who have become huge players in drug sales. It has been a hot sector for the past few years, but now Clinton’s plans to limit drug prices could hurt future profits.

Why should I care?

  1. Personally: Biotech stocks have been popular investments in the past few years, mainly because biotech has been a top-performing sector. It’s a good reminder that top performers can overshoot: the sector is now down 18% since its peak in July. So always keep a cool head when looking at hyped or popular stocks/sectors.
  2. The bigger picture: The boom in biotech stocks has been a big reason why the NASDAQ has had such strong returns in recent years (the NASDAQ is a popular US stock index), and why it’s now struggling. Some investors think of the NASDAQ as a “technology” index (Facebook and Apple, for example); they may not realise the significant impact of biotech stocks on the index.
Originally posted as part of the Finimize daily email.

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