Intersecting trends

06/18/19
  • Small-cap stocks were relatively strong last week
  • Cancer diagnostics industry appears to be in expansion mode
  • Small-cap NEO has doubled in price this year

The major US small-cap stock index, the Russell 2000 (RUT), has lived up to its ticker symbol in recent months, if only in comparison to its fellow equity benchmarks. Yesterday afternoon it was up around 13.6% in 2019—a very respectable  year-to-date (YTD) return, but well behind the S&P 500 (+15.5%) and the Nasdaq 100 (+19%).

The Russell has exhibited some recent signs of life, though, posting the second-largest return among US indexes last week, and the biggest return yesterday. The chart below shows that (like most other indexes) the RUT has entered a range in the lead-up to tomorrow’s Fed interest rate announcement—the outcome of which may dictate whether the Russell initially breaks out of the top or bottom of this tight consolidation.

Russell 2000 (RUT), 3/12/19–6/17/19. Russell 2000 (RUT) price chart. Short-term consolidation

Source: Power E*TRADE


Then it’s a matter of whether it keeps going in that direction.

As noted in “Canary in the market coalmine,” small caps often lead the market higher during bull phases and lead it lower during bear moves—as evidenced by the recent beating the Russell took when it was either the weakest or second-weakest US index for five weeks running between May 10 and June 7.

It’s too early to know if the Russell resurgence is real or a head fake (as was the case in April), but in the event that a dovish Fed fuels more than a temporary “game-on” mood on the Street, small-cap stocks could be poised for an additional boost.

Meanwhile, health care, which still ranks dead last this year among S&P 500 sectors, has been the third-strongest over the past three months.

Neogenomics (NEO), 12/23/18–6/17/19. Neogenomics (NEO) price chart. Up 115% since Dec. 24.

Source: Power E*TRADE


One stock at the crossroads of small cap and health care that hasn’t needed an assist lately is Neogenomics (NEO), a cancer diagnostics company that has more than doubled off its December low, trading above $24 yesterday (on a 4%-plus rally) after spending years trading below $10. NEO pullback buyers have been well rewarded so far this year (chart above).

It’s certainly unfortunate from a health perspective, but the cancer diagnostics industry has been growing in recent years, and is widely expected to expand. One recent study estimated the cancer market would reach $156 billion globally by 2024;1 another pegs it at $249 billion by 2026.2

The reason for such forecasts is simple: Cancer is on the rise, as is the battle against it. The World Health Organization (WHO) cited cancer as the second-leading cause of death in 2018, and noted its economic impact is increasing.3 Increased urgency for early cancer detection, new technologies, and public-private partnerships appear to point toward an expanding diagnostics market.

Abbott Labs (ABT), 3/6/19–6/17/19. Abbott Labs (ABT) price chart. Recent records

Source: Power E*TRADE


It’s not a small-cap niche, though. Larger players in the industry have also been on a roll—like Abbott Labs (ABT), which hit several record highs last week and pushed its YTD gain beyond 24% (above).

If the stars align and the Russell assumes market leadership while health care keeps rotating higher, some traders may be looking for already up-trending stocks in the expanding cancer diagnostics industry to build on their momentum.

Today’s numbers (all times ET): Housing Starts (8:30 a.m.), FOMC meeting starts.

Today’s earnings include: Adobe Systems (ADBE), Jabil (JBL).

 

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1 MarketWatch. Cancer Diagnostics Market outlook with industry review and forecasts. 4/11/19.

2 Research and Markets. Cancer Diagnostics Market Analysis Report By Type (Laboratory Tests, Genetic Tests, Imaging, Endoscopy), By Application (Breast, Lung, Liver, Cervical, Colorectal, Skin), By Region, And Segment Forecasts, 2019–2026. Feb. 2019.

3 World Health Organization (WHO). Cancer: Key facts. 9/12/2018.

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