Hello reader!

We believe that the next two weeks of January can be volatile with a higher probability of downward-pressure on the healthcare sector and the broader market. In our opinion, the pressure can emerge from a few areas. 

The leading healthcare conference ended and it was to some extent disappointing from an M&A standpoint. There was only a single small acquisition that was announced, with Eli Lilly (ELY) acquiring Dermira (DERM) for $1.1 billion. One may reasonably infer from the limited activity that the rest of the month will most likely not bring any meaningful M&A transactions. Investors who may have raised the portfolio exposure to healthcare leading up to the conference may unwind the additional exposure.

Also, impeachment proceedings begin this week. All eyes will be on any disagreements in the Senate within the majority, and whether it leads to trial witnesses being called and a prolonging of the trial. If cracks begin to appear in the Senate majority, that may well be considered negative from the market's standpoint. 

Earnings season will pick up the pace now. Fourth-quarter S&P 500 earnings estimates kept coming down during 2019, and have slipped a little over the first two weeks of January. However, the market is going to be focused on the 2020 outlook and whether estimates can begin to finally rise. This is a key element in determining the market performance going forward. There can be early jitters, but we believe a stronger earnings outlook should come through and help support the market. 

At this point, there is no change in the model portfolio which is 80% invested. The expectation of near-term potential pressure is more of a tactical concern and not a change in the 2020 outlook and we will continue to monitor the situation.

For any questions, kindly contact us at support@GraycellAdvisors.com.

Sincerely,
Graycell Advisors

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