Pouring oil on troubled waters is supposed to calm them, keep the turbulence to a minimum. But the steadily rising price of oil didn’t calm stock prices this week. It depressed them. Even Chairman Greenspan got into the act, telling us that oil would take away some GDP growth, though no more than he thought we could spare, so the markets came away feeling refreshed. After all, things aren’t worse. Over the weekend, Barron’s compared the drug stocks in 2004 to their situation 10 years earlier, in 1994. Then, the Clintons were working on huge changes in the health industry, and the stocks were in the tank, selling for low multiples that haven’t been seen since. Until now. Then, as now, people were talking about price controls for drugs, and the future didn’t look particularly good. Now, many drugs are about to come off patent, and few people see any $1 billion drugs to take their places. Barron’s doesn’t say how this picture will change. It only makes the comparison. An interesting thought. It gives comfort to consider the cyclicity of stocks, especially as the market moves lower. Perceptions will change, but how?
