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T3’s Take 3: Biotech, Fed Chatter Rescues Crying Bulls

1) Bulls Fight Back The S&P 500 fell -0.4% to 2119.12 in the early going, which had traders worrying that we’d see a repeat of Friday’s horrendous action. We also saw early weakness in overseas equities, crude oil, bonds, and gold. However, traders very quickly bought the dip, and the S&P finished up 1.5% at 2159.04. This was the first 1% up day in the S&P 500 since July 8. And since Friday was the first -1% down day since June 27, perhaps we are seeing a real return to volatility after 2 months of near-zero movement. 2) Biotech Saves the Day The first clue that the bull was ready to fight back was the early rebound in biotech (IBB), which was supported by 3 pieces of favorable news. First, Horizon Pharma (HZNP) announced it is buying Raptor Pharmaceutical (RPTP) for $800 million. Gilead (GILD) CEO John Milligan also said at an investment conference that the company planned on making regular acquisitions. And finally, Presidential candidate Hillary Clinton fell ill at a 9/11 Memorial Service in New York. Since she is viewed as anti-biotech, anything that hurts her chances of becoming President helps the sector. The Nasdaq Biotech Index (IBB) rose 3.0% to $287.11 today. 3) Fed Schmed This afternoon, Lael Brainard, a voting member of the Federal Open Market Market Committee, gave a highly-anticipated speech in Chicago. Brainard’s speech leaned dovish, making a case for leaving rates as-is. Considering that Brainard is considered to be one of more dovish members of the Fed, this was not a major surprise. However, her speech had a big impact on markets: the US dollar fell, while gold and stocks ripped higher. Traders are also now pricing in a mere 22% of a September rate hike, down from 32% a week ago. Throughout August, traders loved hawkish Fed chatter. It looks like that’s flipped around now. Tuesday’s Trading Calendar US Economics (Time Zone: EDT) 06:00 NFIB Small Business Optimism (Aug): exp. 94.8 , prior 94.6 14:00 Monthly Budget Statement (Aug): exp. -$107.0b , prior -$64.4b Global Economics 03:15 CHF PPI m/m 04:30 GBP CPI y/y 05:00 EUR ECB Pres. Draghi Speaks 05:00 EUR German ZEW Economic Sentiment 18:45 NZD Current Account Earnings Before Open: None of Significance After Close: None of Significance