Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, July 9, 2025. Today’s Stocks On The Contrarian Radar©️ segment features pharmaceuticals, specifically MRK , and can be read at the bottom of this page.
State of Play
Stocks have meandered this week due to lack of catalysts, just as was anticipated. As we eye or board of indicators for signs of direction at 0715 ET things are pretty quiet:
* Stock index futures are unchanged with no major US index moving more than 0.2% from the break-even point;
* The big move in commodities is in copper, which is consolidating after jumping to record highs earlier. This was caused by, you guessed it, tariffs or the threat thereof as President Trump said he would slap a 50% import tariff on the industrial metal. WTI crude oil is unchanged at $68.50/barrel. Gold and silver not doing much either;
* Cryptos aren’t moving much. Bitcoin unchanged trading around $108,80;
* Bonds are flat. The 10-year yields 4.40%.
Known Events
Minutes from the Federal Reserve’s last monetary policy meeting are out at 1400 ET. This is closely watched by investors even though it captures a moment in time from several weeks ago, in this case the June 17-18 meeting. The Fed held rates unchanged at that meeting but signaled there would be two rate cuts this year.
The minutes will provide some insights into the discussions that were held. This isn’t binding because a) presumably meeting participants could just agree to stop transcribing at various points and b) the Fed is data dependent and new data can and will impact FOMC voting members’ views as it becomes available. Indeed there has been new data since that meeting already, in the form of the PCE Deflator and non-farm payrolls, among others.
This is one reason The Contrarian doesn’t understand all the fuss around FOMC meeting minutes, but the market does move on this.
Tomorrow (Thursday) morning, second-quarter earnings season kicks off with traditional curtain-raiser Delta Air Lines (DAL ). Conagra Brands (CAG ) reports at that time as well. After the close we’ll get Levi Strauss (LEVI ) and WD-40 (WDFC ), among others.
The Bottom Line
Any Fed talk of inflation concerns in the minutes could put a damper on risk-taking as it will indicate higher-for-longer interest rates. If the discussions are more concrete around rate cuts, it should lead to a market rally. You’re going to want to watch Fed fund futures, currently pricing in just a 4% chance of a rate cut at the next meeting, on July 30. A rate cut at that meeting is off the table in all likelihood but futures are pricing in a 60% likelihood of a cut at the subsequent meeting, which isn’t until Sept. 17.
Fed-obsessing watching aside, the focus will otherwise be on tariffs. It’s not just copper that was caught in Trump’s latest comments on this matter but also pharmaceuticals…
Stocks On The Contrarian Radar©️
Trump’s comments have led to a drop in pharma stocks overnight, as evidenced by the SPDR S&P Pharmaceuticals ETF (XPH ), which is down 2% at the time of this writing. This drops the XPH to ~$40.50/share:
That latest move is not captured in the above chart, which doesn’t reflect pre-market activity. It moves the ETF toward the lower end of its five-year Bollinger Band range:
Technically that makes XPH cheap but not yet a bargain as it was in the middle of last year, for example. So the move in pharma stocks is not particularly dramatic here. It seems the market is getting wise to Trump’s tariff threats, treating these more as bombast than a clear reason to dump risk.
Perhaps more importantly, major pharma companies like Merck (MRK ), Johnson & Johnson (JNJ ), Eli Lilly (LLY ), and Novartis (NVS ) have already announced plans to expand US manufacturing as a direct result of previous tariff threats. All of these stocks factor prominently in XPH’s holdings.
If you add Pfizer (PFE ), a Contrarian Portfolio holding, into this mix to create a ‘Big 5’ of pharma stocks, you can observe a mixed bag of performance over the last year:
Merck, Eli Lilly, and Pfizer are the clear losers here with MRK having lost more than a third of its value! This leaves MRK trading at prices not seen since 2022 and at just 10x forward earnings versus an industry average of 17x. On a cashflow basis, MRK is even cheaper, trading at 8x forward cashflows versus an industry average of 14x.
Does this make Merck a buying opportunity? Maybe, though other valuation metrics (price/sales notably) are much more in line with the industry average. The balance sheet appears to be in good shape with $35 billion of total debt versus a market cap of more than $200 billion. But here too more scrutiny is needed, as $36 billion of the company’s $115 billion assets are ‘goodwill’ and ‘other intangibles.’
Let’s also not forget that the balance sheet will take a hit from Merck’s $10 billion buyout of Verona Pharma (VRNA ), though that may be priced in already. What that deal does tell us is that M&A in the pharma industry is alive and well. That speaks to an industry very much in expansion mode.
The Verdict
Some pharma companies are cheap by historical standards and Merck may be the cheapest pharma major at present. That makes a potentially compelling investment opportunity.
MRK also has a nice dividend, to the tune of 4% at current prices. That makes it a better candidate for tax-advantaged portfolios like IRAs than vanilla brokerage accounts (for US taxpayers at least).
Pharmas are also compelling because they are mostly divorced from economic realities. The assumption is that individuals need certain drugs and insurance plans, whether provided by the state or private enterprise (or employers), will make these purchases on their behalf. That isn’t 100% true of course as people lose their jobs and insurance plans, for whatever reason, make the purchase of brand name treatments more expensive. Generic drugs of course can also replace the successful brand treatments. Some pharma majors have generics divisions. Merck, at least in the US, does not.
The challenge with pharmaceuticals is gauging the valuation. Much of the stock price depends on the likelihood of success of future drugs more than anything else. That is not something The Contrarian, who barely passed ninth grade biology (when he took it in 10th grade), is educated to assess. He could read up on it, sure. Maybe some day he will. But as a major holder of Pfizer already he is loath to add another pharma major to his portfolio. At that point it really makes more sense to just buy the ETF.
For these reasons The Contrarian is sitting this opportunity out, at least for now. Should MRK or pharma ETFs become a lot cheaper than he will need to revisit this stance however.
Not investment advice. Do your own research. Make your own decisions.
Housekeeping
* PSA: The scheduling of this briefing is being reshuffled a bit due to the success of the live video.
* This will air closer to the market open, typically between 0800 and 0900 ET.
* Free subscribers can join live. The recording will be available to premium subscribers.
* You should receive this briefing in your email and on the app — also Spotify — as previous. There are some reports that this is not happening consistently. Substack has been notified of this.
* Obviously this is not investment advice (duh). Do your own research, make your own decisions.
* Read this month’s portfolio update letter here. The Substack chat tracks The Contrarian’s trades in (almost) real time.
* If this daily thing is drowning your inbox and/or you CBF to bother with it and prefer to just get the guest feature or actionable highlights — you can control these settings on your account page.
* Finally, if you enjoy this and want others to experience it, please gift a subscription to your friends (or even your enemies).
