The R&D Index: Market Watch for the week ending March 17, 2017 closed at 1,645.28 for the 25 companies in the R&D Index. The Index was up 0.08% (or 1.33 basis points) over the week ending March 10, 2017. Eleven R&D Index companies gained value last week from 0.09% (Bayer AG) to 6.98% (Oracle). Fourteen R&D Index companies lost value last week from -0.03% (Honda) to -3.48% (Bristol-Myers Squibb).
For the second time in the past three months, the Federal Reserve raised short-term interest rates last Wednesday from 0.75% to 1.00%. They also noted that two more rate increases could be expected this year with an end of the year rate of approximately 1.50%. It also was noted that the inflation rate was already approaching the Fed’s target of 2.0%. The Fed noted, however, that 2.0% was not a ceiling and inflation could go slightly higher for a short period of time without any negative effects.
The Trump administration also released its FY2017 government spending proposal last Thursday with significant cuts in most agency budgets ranging from 10% to 20%. If approved by Congress, these cuts could see substantial reductions in the government’s investments in R&D. Reductions (from FY2016 budgets) were proposed for the NIH (-19.8%), DOE (-11%), DOC/NIST (-10%), the EPA (-30%), the USGS (-10%) and NASA (-1%). Congressional comments to these proposals followed mostly party lines with Democrats taking issue with specific cuts for science agencies and Republicans mostly embracing the cuts as a means to reduce the size of government. The administration was looking to cut about funding from the non-defense discretionary budget and shift it over to the defense budget.
The NIH’s budget reduction is particularly painful for the U.S. R&D community in that most of its funding is focused on supplying grants for life science research or supporting its research centers. NIH R&D funding has been mostly static for more than 10 years, which when accounting for inflation has seen a real-dollar reduction of more than 20% alone. Adding the FY2017 proposal into this relationship, would reduce NIH R&D by more than 40% from what was invested 10 years ago in real dollar spending values.
R&D Index member Apple announced—in China only—that it plans to open two new R&D centers in China—Shanghai and Suzhou—adding to its existing R&D centers in Beijing and Shenzhen (announced earlier). These efforts are in response to its 17% drop in Chinese sales over the past year to $48.5 billion, much of it to China’s Huawei Technologies, Oppo and Vivo, each of whom ship more products that does Apple. The new R&D centers are expected to boost Apple’s annual R&D investments in China to more than $500 million—it’s total global R&D investment in 2017 is expected to exceed $9 billion. Apple stock rose 0.55% last week to close at nearly $140. If Trump’s tax repatriation succeeds this year, analysts expect Apple stock could reach $175—Apple currently has invested more than $204 billion in offshore profits.
|R&D Index Week Ending March 17, 2017|
|Ticker||Exchange||2015 R&D billions$||03/10/17||03/17/17||3/17/17 to 3/10/17||3/17/17 to 1/1/16|
|5||Johnson & Johnson||JNJ||NYSE||9,046||126.21||128.06||1.47%||24.67%|
|10||Merck & Co.||MRK||NYSE||6,704||65.60||63.90||-2.59%||20.98%|
|14||Astra Zeneca PLC||AZN||NYSE||5,997||29.55||30.69||3.86%||-9.60%|
|19||Eli Lilly Co||LLY||NYSE||5,331||84.36||83.96||-0.47%||-0.33%|