In New York morning trade, we are looking at the Dow industrials pulling back by 1% and the S&P 500 off a little over 0.5%.
Now this does come as President Trump is at the NATO summit and says that he thinks the MOU ceasefire with Iran is over.
Now Trump also saying the US will probably hit Iran hard tonight while the US and Iran trading attacks and the Treasury Department revoking Iran's oil sales.
Waiver also Iranian leadership saying the US actions have made last month's peace deal ineffective.
Meanwhile, the S&P 500 just locked in a historic second quarter, it's best run since 2020, but the summer is bringing fresh uncertainty, a sudden slide and chip makers as rattling Wall Street on a bubble field while tanker attacks in the Middle East, nudging oil prices higher.
So how do you protect your gains and navigate the road ahead while joining us live here.
New York Stock Exchange is Kevin Mahn, CIO at Hennon and Walsh Asset Management.
Kevin, good morning.
Thank you so much for joining me.
Of course here we are.
We are looking at the major stock averages in negative territory, and we are looking at oil prices higher, but I think perspective is key here because the first half turned out to be quite well for the major US stock averages.
The S&P 500 seeing its best year since.
2020.
Yes, so what do you make of what we're seeing this morning?
Yes, it doesn't surprise me that volatility has returned.
It seems as though the memory and understanding is no longer being understood, and that's a risk for the markets because the investors have already put the Iran conflict behind us.
We believe that in fact the Strait of Hormuz had opened, oil tankers would flow more freely and oil prices would come down.
That was all true until Earlier today, but coming into today, we saw the markets go up 15% in the second quarter, the best quarter since 2020, and if history serves as a guide, Remy, historically when the market is up by 10% or more in the quarter, the following quarter is up nearly 88% of the time.
So I do believe if we can move past this conflict, which I thought we already had, then there will be more growth opportunities ahead.
But expect more.
Choppiness until we do.
Yes, and speaking of chopiness this morning, we saw oil futures, both WTI as well as Brent, higher by as much as 6%.
Those gains are being paired, and we have to remember perspective here because we are below $100 a barrel for both Brent as well as WTI, and we are counting down to the Fed minutes which will be released later today.
So what does all of this mean for inflation?
If in fact oil starts to move and creep higher and get close to $100 a barrel again, well then all of a sudden the Federal Reserve has to take that into the calculus.
Right now it's still in the $70 range, so you need to keep perspective.
And for those who came out of the last Federal Reserve meeting in June, the first such meeting under new Chair Warsh, thinking that the Fed was more hawkish, well, think again.
Remember we had 18 voting members at that meeting.
Chair Warsh did not vote.
9 of them were in favor of a 25 basis point hike.
8 of them were in favor of no activity with rates this year, and one of them was actually in favor of a 25 basis point cut.
So there's no unanimity there.
So I'm very interested in seeing those minutes, seeing what the discussion was.
Was it solely focused on oil prices that made those 9 members vote for a potential rate hike this year?
And if oil prices continue to come down, are we going to start talking about a rate cut later this year as a result?
Yes, and we have to keep in mind that we did get the labor market data in terms of.
Non-farm payrolls as well as the unemployment rate, but there are a lot of finer details when it comes to that report, given the wage growth as well as labor participation.
And of course we'll be paying attention to PC as well as inflation as we head into the July Fed meeting.
But when it comes to the overall US economy, where do we stand right now?
It seems as though we're in a Goldilocks state at the high level, right?
We have unemployment which fell to 4.2%.
We had wages growth.
3.5% year over year, but we also have labor force participation rate at just 61.5%.
Job creation came in much lower than expected, so the labor market is relatively stable, certainly not too hot.
Economic growth, according to the Atlanta GDP forecast, we're only looking at 1.2% for the second quarter, certainly not knocking the cover off the ball, but not exactly going into recession territory either.
So we have to continue to look at inflation data, which is why this with Iran and the potential closure of the Strait of Hormuz again is so important.
Yes, a lot of areas to keep our eyes on, but while we take a look at the broader markets here, in particular the rotation that's happening, the leaders and laggards for the S&P 500, I do want to hone in on biotech.
Yes, and of course we have been paying attention to IPOs, but there have also been plenty of M&A action.
So give us your take when it comes to this patent cliff for biotech.
Yes, so over the next few years there's over 200 drugs that are scheduled to lose their patent protection.
69 of those are deemed blockbuster drugs with annual sales of over a billion dollars each.
So if that's true, where are all those large pharmaceutical companies that are losing those patent protections going to turn to replace that revenue potential?
Well, I believe they're going to have to be acquisitive, and we've already seen it this year.
We've seen a 90% year over year increase in M&A activity through the first half.
This year, the largest and greatest start since 2021.
I expect more M&A activity ahead.
You just have to find the right biotech names that are going to be attractive to the large farmers.
Yes, so I do want to expand on that.
Tell us about your conviction picks for the space and why.
Sure, I got 3 names to go over today.
They all start with an A, so it's my A-list, if you will, Remy.
AAA.
How about that?
I like it.
I'm going to use that.
First one, Alleggen.
Alleggen is a smaller cap.
Biotech company.
They're using C cell therapy to actually treat blood cancers and solid tumors.
There's a company called Alchemy, which is a larger biotech.
The market caps north of $5 billion but they're developing treatments for central nervous system disorders such as depression, schizophrenia, and addiction.
And last but not least, there's another company that we're looking at, Arctus.
These companies are hard to pronounce, which is another smaller cap biotech company who a strategic alliance with ThermoFisher to develop their mRNA therapeutics for the treatment of cystic fibrosis.
So all fascinating, groundbreaking medical innovations.
I think each three of those companies are going to potentially be attractive to large cap pharma, and we could see some M&A deal announced on one of those names, maybe more over the next 2 years.
Well, Kevin, thank you so much for joining us today and your AAA list for those bio.
Thank you so much.
Thank you.
