It was an extraordinary news conference that made for an extraordinary session for the stock market.

Donald Trump raised questions about pricing power and profitability, the heart of the stock market and ultimately the driver of higher share prices. As Commander-in-Chief, there is a fiduciary responsibility to make sure that taxpayers spend as little as possible for anything from fighter jets to medicines. Naturally, his comments on spending and the need for new bidding procedures spooked drug and biotechnology stocks.

Donald Trump didn’t say anything new during the press conference but reminded the business world that things will be different, including getting a shout-out like Ford and Carrier. United Technologies got a shout-out on Wednesday.

The market is going to have to learn to deal with these press conferences for the next four years. 

Beware Capping Corporate Profits

Ironically, the early air pocket provided the perfect backdrop to test nervous investors and big money that’s been waiting for an entry point.

The fact stocks rebounded and gathered momentum into the close was amazing. Especially the NASDAQ-it was weighed down by the aforementioned biotechnology stocks.

This all underscores the fact that the market thinks tough talk won’t equate into a trade war or restrictions on corporate profits.  

Wall Street knows the majority of Republicans in Congress have been against Medicare-negotiated drug prices, and Tom Price even voted against such a policy.

Drug Companies Under Fire

We've got to get our drug industry back. Our drug industry has been disastrous. They're leaving left and right. They supply our drugs, but they don't make them here, to a large extent. And the other thing we have to do is create new bidding procedures for the drug industry because they're getting away with murder.  Pharma, pharma has a lot of lobbies and a lot of lobbyists and a lot of power and there's very little bidding on drugs. We're the largest buyer of drugs in the world and yet we don't bid properly and we're going to start bidding and we're going to save billions of dollars over a period of time.

-Donald J. Trump

I have been to drug manufacturing facilities, and it’s mostly mashing powder into pills. It’s not rocket science, so it is surprising how much of the U.S. drug company production is done outside the United States. Those imports added up to $86 billion in 2015, or 25% of the total market.  In this case, production isn’t about cheap labor but steep taxes. Check out the top five sources of imports:

1.	Ireland	$15.2 billion
2.	Germany	$14.5 billion
3.	Switzerland	$9.4 billion
4.	Israel	$6.0 billion
5.	India	$6.0 billion

With that being said, I suspect drug companies will play ball to a degree to avoid public shaming, to  getting the administration to allow merger activities, and to make the FDA drug approval process less onerous and expensive.

I bet a deal is being worked out.

Session Highlights

Big Trump Administration winners yesterday:

Coal Company Cliff Natural Resources (CLF) shares surged 4.2% on 17.8 million shares, which is 5 million more than average.

Medical device companies could get a big break from the Obamacare repeal. These stocks keep rocking, including Zimmer Biomet Holdings (ZBH), which has rallied 9.7% since last Friday.

After the close on Wednesday, KB Homes (KBH) posted earnings results that beat on revenue and earnings. The stock is edging higher on management observations of the highest backlog value in a decade, along with a strong momentum and a focus on first-time buyers. 

That’s great news for everyone; it means family formation, which means millennials are moving out of the basement.

Today’s Session

The market has been under pressure all morning, which seems to be par for the course the day after the Dow closes in the shadow of 20,000.   Today sees no less than four Fed officials speaking, including a town hall with Janet Yellen tonight at 7PM. 

This morning, Philadelphia Fed President Patrick T. Harker reiterated the possibility of three rate hikes this year, citing the following:

•         Signs of strength in economy
•         Labor markets strong
•         Skills shortage
•         Inflation picking up

It has to be noted that Harker is a hawk (he replaced Plosser another inflation hawk) who is on record for stating “when inflation rises it tends to rise quickly.”

Earnings season kicks off big time tomorrow so this could be a quiet session. 

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