2023.05.08 4,300 points to be the resistance

The Federal Reserve Board raised the target range for the federal funds rate by 25 bps to 5% and 5.25% range on its two-day monetary policy meeting on the 3 May. This is the 10th time the Fed has raised interest rates since entering this round of rate hikes in March 2022, with a cumulative increase of 500 bps. The US economy expanded moderately in the first quarter, while new job growth has been strong in recent months, with the unemployment rate remaining low while inflation remians high. Regarding whether the next meeting will end the interest rate hike, Powell emphasized that it depends on subsequent data. He estimated that it might not reduce interest rates too quickly because of current high inflation.

Due to the easing of the US banking crisis and better-than-expected financial performance of large US banks and technology leaders, together with a strong labor market and service economy, the three major US stock indexes rose in April. The Dow Jones Industrial Average rose by 2.48%, the S&P 500 rose by 1.46%, and the Nasdaq Composite Index rose by only 0.04%. There is a certain divergence in the market regarding whether the US economy is entering a recession. Powell also stated that the US economy may avoid a recession, and even if there is a recession, it may be mild. However, the trend of economic slowdown has not changed from the current perspective. Although the manufacturing PMI has rebounded for four consecutive months, it is still in a downward trend, and consumer spending has slowed, which may cause downward pressure on service industry inflation in the coming months. From the perspective of recession, unemployment rate, and tightening of credit, the market is still filled with uncertainties. We expect that the short-term U.S. stock market will have a higher chance of going down again. The S&P 500 index is expected to fluctuate between 4,000 points and 4,300 points.

In terms of industries, although the US economy still faces huge pressure in 2023, investors can still pay attention to innovative drugs and biotechnology industries for the longer-term.

AbbVie Inc. (ABBV.US) is a research-based global biopharmaceutical company. The company’s products focus on the treatment of chronic autoimmune diseases such as rheumatology, gastroenterology, and dermatology, as well as innovative drugs in important medical specialties such as oncology and neurology. The company’s revenue for 1Q23 was US$12.2 bn, -9.7% YoY, with GPM of 84.2%.

The company’s immunology drugs Rinvoq and Skyrizi are expected to drive further revenue growth. In the first quarter of 2023, the revenue of these two drugs achieved double-digit growth. Rinvoq’s revenue increased by more than 47% to US$686 mn, and Skyrizi’s revenue increased by more than 44% to US$1.3 bn in 1Q23. Mgmt stated that the company’s products have shown robust performance in all indications. Skyrizi has a 30% prescription share in the US psoriasis biologics market. The company’s goal is to achieve annual revenue of US$21 bn for Rinvoq and Skyrizi until 2027. It is recommended to buy at US$143.5, target at US$167.2, and stop loss at US$137.6.

Novo Nordisk (NVO.US) is a science-led global biopharmaceutical company headquartered in Copenhagen, Denmark. The company mainly produces and sells various human and modern insulin, injectable diabetes treatments, and oral anti-diabetic drugs, occupying nearly 50% of the global insulin market. In 1Q23, the company’s sales increased by 27% YoY, mainly due to the increase in GLP-1, diabetes and obesity product sales.

In 1Q23, the sales of the company’s diabetes and obesity care department were DKK 48.8 bn, +31% YoY. In terms of diabetes care and rapid-acting insulin, the revenue of the company’s product Fiasp increased by 3% YoY, and the revenue of NovoRapid decreased by 10% YoY. The first-quarter sales of Ozempic have reached DKK 19.64 bn, +59% YoY. Rybelsus also achieved strong growth, with sales of DKK 4.36 bn in the quarter, +107% YoY. The sales of obesity care products (Saxenda and Wegovy) increased by 124% YoY. After the company solved the supply problem of Wegovy in the US, the sales of Wegovy increased significantly. In December 2022, all dose strengths of Wegovy were launched in the US market, and the second contract manufacturer of Wegovy began production in April of this year. It is recommended to buy at US$158.3, target at US$184.1, and stop loss at US$151.6.