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Biotech, real estate and Greece: What to watch today

Michael Santoli
Michael Santoli

Welcome to Friday. Here are three things to keep an eye on during the trading day.

Two of today’s three are animated by near-opposite human cravings, but both have been crucial drivers of this bull market: biotech stocks and REITs.

Number 1:

Biotechs are all about a hoped-for future, the promised huge payoff from smarts and risk-taking, magic molecules to extend lives and maximize human potential.

What price to pay for such distilled human genius and the enormous future profits from designer drugs?

Lately, almost no price has been too high. The iShares Nasdaq Biotech ETF (IBB) is on one of its manic tears, up 6% this week, 33% the past six months and 134% in two years. The fund is on the verge of its sixth straight month of gains, one short of a record streak set in 2011 and 2012. Back then a stiff gut check followed.

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Never mind its high P/E and the nuances of pharmaceutical company M&A plans and drug-reimbursement policies. These stocks move over short bursts on adrenaline – a mixture of liquidity and aggression. Which is why the IBB should be on your screen as a “tell” for when risk appetites in the growth stocks might start to flag.

Number 2:
The real estate investment trusts appeal to an entirely different set of investor impulses: The perceived security of real assets and the bird-in-hand comfort of regular cash dividends.

REITs (VNQ) have delivered a nice total return for investors during this bull market, too, thanks to the scarcity of safe yield in the world keeping these high-payout landlord stocks in demand.

As the Wall Street Journal points out today, REITs have been aggressive in raising fresh cash this year through stock offerings, taking advantage of ultra-low global interest rates and investors’ willingness to overlook how expensive these stocks are on an absolute basis.

The crowd has been wrong in anticipating a general lift in bond yields for years now. Yet if such a shift finally takes hold, REITs will get crushed. If you’re buying them now, it better be because you’re happy to nurse on the dividends alone.

Number 3:

Greece continues not to matter much. Cash is fleeing the country, and the new regime is flamboyantly uncooperative toward its bailout masters as another European economic summit convenes.

The reason all this doesn’t matter much to us is that the tumult in Greece is not upending Europe’s financial structure more broadly. In 2010 and 2011, it was not so contained.

Today we don’t have measures of banking stress flaring in a serious way. Watch the European Financial Sector ETF (EUFN) for signs of spreading contagion. While the fund hasn’t thrived this year, it’s mostly due to dollar strength and not weakness at the underlying banks.

So long as the action there is tame, you can safely ignore Greece.

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