As global stock markets rally, Relief Therapeutics’ stock price plummets. Inflation, the Ukraine war and other factors continue to weigh on stock market prospects.
On the global stock markets, the leading indices developed positively across the board for the first time since the outbreak of the Ukraine war.
It’s over. The Geneva-based biotech company Relief Therapeutics Holding AG and its American partner company have had to stop clinical studies on the drug Aviptadil. The American health authorities announced this week. Those responsible could not have proven the benefit of the active ingredient.
The report from the United States is the end of the hype surrounding a Swiss penny stock, which is likely to have cost many private investors a large amount of money: Relief Therapeutics’ share price fell by more than 25 percent on Friday in response to the authorities’ decision.
Many investors are likely to have little left of their original investment, the loss seen over twelve months is a good 80 percent. The business prospects of the most valuable Swiss biotech company with a market capitalization of over one billion Swiss francs are bleak.
After the outbreak of the pandemic, the drug Aviptadil from Relief Therapeutics was considered a promising candidate for the treatment of seriously ill Covid 19 patients, a potential “miracle drug” in dark times, but which only had a wafer-thin data basis in terms of effectiveness.
Risk-taking investors were not discouraged and drove up the price of Relief Therapeutics shares by 60,000 percent with their share purchases in the fall of 2020, which attracted more small investors. Those responsible for the company have already announced how the income from the global sale of the drug will be shared with the American partner company.
But as great as the hype on the stock market was, the results from the laboratories were just as disappointing. The American health authorities already refused the company an emergency license at the end of 2020. The stock price has fallen steadily and steeply since the fall 2020 high. It is now approaching pre-pandemic levels.
The Relief Therapeutics case is a lesson for investors not to follow every hype on the stock market. As the Gamestop case showed in early 2021, it is not advisable to be guided by anonymous sources on social networks when creating questionable forecasts and claims. Even then, many small investors lost a lot of money.
Stock markets end losing streak
On the global stock markets, the leading indices developed positively across the board for the first time since the outbreak of the Ukraine war. In China, tech stocks posted sharp gains after Alibaba and Baidu beat analysts’ earnings expectations.
The positive results are considered a possible indication that large Chinese corporations may be able to prosper despite the government’s strict Covid policy in Beijing. At the same time, there is still hope that the draconian containment measures could soon give way to more business-friendly policies.
In the United States, discount retailers such as Dollar Tree and Dollar General were among the big gainers for the week after reporting higher-than-expected sales in an inflationary environment with low prices.
In Germany and Switzerland, some of the biggest losers this year were able to record price gains thanks to purchases by anti-cyclical investors. The prices of the badly battered shares of the German order platform Delivery Hero, but also those of Credit Suisse and Partners Group, rose by several percent. However, there can be no talk of compensation for the losses since the beginning of the year. At the end of the week, the luxury goods group Richemont also recorded a price gain of a good 10 percent thanks to a positive market comment from the Royal Bank of Canada.
Inflation remains high
None of this should hide the fact that there is considerable uncertainty on the markets as to whether the price corrections have now bottomed out – or whether further losses must be expected due to the uncertain geopolitical and monetary policy environment.
The uncertainty extends to the Federal Open Market Committee, which this week published the minutes of its meeting in early May; this gives the public an insight into the decision-making process of the most influential central bank in the world. The most recent paper shows that the central bankers intend to stick to the planned rate hikes of 0.5 percentage points each in June and July. It is also certain that the Fed intends to start reducing its own balance sheet on June 1st. This means that the repayments from expired bonds are no longer reinvested in new securities.
Those responsible around Fed boss Jerome Powell can only imagine turning away from the current sharp tightening course of American monetary policy if the inflation indicators point to a significant decline in price increases over a longer period of time. In addition, the Fed is also willing to accept higher unemployment and lower economic growth. Powell emphasizes at every opportunity these days that it will not be “without pain”.
The figures published on Friday have not yet reached the threshold for a sustained fall in inflation: Although inflation fell slightly in April, it is still at a high level. Compared to the same month last year, the PCE consumer price index, which is the Fed’s preferred indicator, rose by 6.3 percent after rising by 6.6 percent in March. Without the price developments for food and energy, which are considered to be volatile, the increase would have been smaller in both months. It is too early to give the all-clear.
Wealthy US households drive consumption
On the other hand, the new data on consumer spending in the USA, which rose by 0.9 percent in April and was therefore stronger than expected, is cautiously positive. Apparently, American households are increasingly using their savings to finance their own consumption of goods and services.
The savings rate fell to its lowest level in more than a decade. These are likely to be wealthier households driving consumption. However, low-income Americans are financially constrained by high gas and food prices.