Week ended October 23, 2015

Global markets were driven by three factors last week:

• US dollar appreciation against other major currencies.

• Reports of drug pricing manipulation by Valeant Pharmaceuticals.

• Knockout earnings, particularly for the tech sector.

Global stock markets as indicated by the S&P Global 1200 Stock Index were up 1.42 percent on the week.

The People’s Bank of China lowered its benchmark lending rate in an effort to float its own economy and to calm the recent turmoil in emerging markets. This was announced the day after European Central Bank President Mario Draghi said that the ECB would continue its quantitative easing programme leaving little doubt he’s ready to add monetary stimulus to boost the economy.

These announcements drove the US dollar higher, particularly against the euro. The US dollar is king once again after several months of respite.

Frustrating for healthcare investors was the report by Citron Research suggesting that Valeant Pharmaceuticals was using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. Indeed Valeant has an option to acquire Philidor.

Valeant has been scrutinised by lawmakers for pushing up prices of heart drugs Isuprel and Nitropress which Citron says disguises a lack of growth. Pharmaceutical stocks sold off across the board on this news with the SPDR Pharmaceutical Index down 4.01 percent on the week.

Microsoft, Amazon, and Alphabet (Google) reported better than expected earnings last week which drove up tech prices including Apple that reports tomorrow. Top line also beat expectations.

Microsoft appreciated 11.28 percent on the week, followed by Apple which was up 7.24 percent and Alphabet which was up 6.01 percent.

We would like to say that these earning beats confirms a recovery in stock prices following last quarter’s sell-off; however, daily price movements continue to be broad on the upside and downside without any fundamental rationale for such swings.

This suggests to us that psychological factors (fear) transcend good fundamentals for the time being.