The R&D Market Pulse Index for the week ending February 2, 2018 closed at 4,152.95 for the 25 companies in the R&D Index. The Index was down 2.78 percent (or 118.98 basis points) from the week ending January 26, 2018. Only one R&D Index company posted a gain for the week: Amazon (1.99 percent). Twenty-four R&D Index companies posted losses for the week from -0.14 percent (Honda) to -7.85 percent (Intel).
Last Friday’s DJIA 665-point stock market sell-off was the largest percentage loss (2.54 percent) since the 610-point June 24, 2016 sell-off (-3.39 percent) following the Brexit vote. Part of the reason for last Friday’s sell-off was due to investors’ concerns over future potential increases in inflation that may come about due to increasing wages. A report released by the Labor Department on Friday noted that average hourly earnings for private-sector workers rose by 2.9 percent in January from January 2017, the largest year-over-year increase since June 2009, following the end of the Great Recession. Secondary reasons for the sell-off was the release of quarterly reports by Google/Alphabet and Apple which both listed earnings losses. Apple also noted that it is cutting its iPhone X production by nearly 50 percent due to reduced demand for the pricey handset. Amazon, the only R&D Index company to post a stock valuation gain for last week, also released its quarterly report last Friday with an earnings increase. Amazon actually saw its intraday trading rise to a nearly 7 percent gain until it got caught in the general sell-off and had to “settle” for a final 2 percent gain for the week.
Market analysts expect the general market rise to continue, although with a significant increase in volatility. The 5.9 percent increase in market valuations seen in January is unlikely to continue, but additional company quarterly reports are expected to be more positive than the Google and Apple reports. The Federal Reserve is also poised to quickly implement more short-term interest rate increases in response to inflationary threats. R&D spending by the R&D Index companies is unlikely to change due to last-week’s stock changes. The Fed held current interest rates of 1.25 percent to 1.50 percent steady at last Wednesday’s meeting and vaguely implied a rate increase could come as soon as March.
R&D Index member Amazon also announced last week that it was joining with Warren Buffett’s Berkshire Hathaway and JPMorgan Chase to form a company to reduce their workers’ health costs. Fearing competitive pressures, this news quickly affected the stocks of health insurers including Cigna, Human and Aetna; pharmacies such as Walgreens and CVS; and drug distributers including McKesson and Cardinal Health. These companies saw stock losses from 2 percent to 7 percent.
R&D Index Week Ending February 2, 2018
|Ticker||Exchange||2017 R&D billions$||01/26/18||02/03/18||2/3/18 to 1/26/18||2/1/18 to 1/1/17|
|Johnson & Johnson||JNJ||NYSE||9,060||145.33||137.68||-5.62%||19.50%|
|Astra Zeneca PLC||AZN||NYSE||6,363||36.63||35.90||-1.99%||31.40%|
|Merck & Co.||MRK||NYSE||5,759||62.04||58.56||-5.61%||-0.53%|
|Eli Lilly Co||LLY||NYSE||4,489||87.08||81.18||-6.78%||10.37%|