A selloff in biotechnology shares halted a rally in U.S. equities, while the dollar rose and Treasuries fell after Federal Reserve Chair Janet Yellen reassured investors the turmoil in emerging markets won’t kill off U.S. economic growth.

The Nasdaq Biotechnology Index tumbled more than 5 percent, sending the gauge of drugmakers into a bear market. Nike Inc. surged to a record, bolstering the Dow Jones Industrial Average. An index of global equities rose for the first time since the Fed policy meeting last week. The dollar strengthened toward its best week in two months, Treasuries led bonds lower and gold slumped.

Yellen managed to calm markets that had been shaken up after the Fed left rates unchanged last week amid concern that economic and financial turmoil could slow growth. A tweet from Democratic presidential hopeful Hillary Clinton suggesting there may be “price gouging” in the market for prescription pills sparked the selloff in drugmaker shares this week.

“We saw a rally come in and now the rally is getting questioned,” said John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co. “ It’s going to be all about earnings. The biggest thing here is: people are impatient. They want their answers now.”

Data in the U.S. today showed the world’s largest economy expanded more than previously forecast in the second quarter, boosted by gains in consumer spending and construction. A report on consumer sentiment indicated some households are starting to look beyond the recent turmoil in financial markets.

David Fuller's view

Janet Yellen is right.  Turmoil in emerging markets, especially the commodity producers, will not kill off US economic growth.  In fact, US growth is benefitting from those depressed commodity prices represented here by the CRB Continuous Commodity Index (CCI) (weekly & daily), updated through Thursday. 

China’s slowdown gets most of the credit / blame for low commodity prices and that has been an important influence, particularly for industrial metals.  However, the even bigger story, by far, is increased production, helped by technology.  This has boosted the production of all commodities and especially the industrial sector in recent years.  Consider unconventional production of crude oil via fracking and the almost fully automated mining projects run by some of the larger firms. 

Currently, CCI shown above is somewhat overextended to the downside, relative to its 200-day (40-week) MA shown on the weekly chart. The daily graph shows that it has rallied over the last two days and a clear break above 400 would indicate further mean reversions towards the MA.  I would not be surprised to see CCI considerably higher over the next two to three years due to a combination of production cutbacks and increased demand due to somewhat stronger global GDP growth.   

Did Hillary Clinton’s one-off “price gouging” comment trip the Nasdaq Biotech Index, updated through Thursday?  A top performing sector, it was clearly overextended in July and had lost uptrend consistency when she spoke.  A further correction would create another buying opportunity for favoured shares in this sector. 

Lastly, Nike (weekly & daily) surged today on strong growth in China.  Consequently, this phenomenally well managed Autonomy is temporarily overbought once again, possibly due to short covering.  It may now underperform for a while but is always promising following corrections.  What is Nike’s secret?  It has great management, products and marketing, while also benefitting from the rising middle classes.  Nike has also turned sports goods into fashion items, not least in women’s shoes.  The Nike swoosh is also the best logo, by far.