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Point72 CEO and founder Steven A. Cohen (Dave Kotinsky/Getty Images)

Hedge funds are ditching MBAs for MDs

Wall Street is sourcing new hires from an unlikely location: hospitals.

12/5/24 1:27PM

Hedge funds’ hottest new recruiting classes aren’t coming from business schools and investment banks; they’re coming from… hospitals. Earlier this week, Reuters reported that hedge funds including Balyasny, D.E. Shaw, Point72, Schonfeld, Qube, and Squarepoint are hiring “doctors, scientists, and analysts” to give expert insights on pharmaceutical stocks.

All companies experience volatile moves based on good and bad earnings reports, but the stock prices of pharmaceutical companies, specifically, can double or collapse depending on drug-trial performances. Hiring doctors with domain expertise, therefore, can be incredibly lucrative for hedge funds if it helps them place bets before drug-trial results are released.

A good example: on November 25, Cassava Sciences announced that it would stop all trials of its Alzheimer’s disease drug after it failed a late-stage study, sending the stock down from $26.48 on Friday, November 22, to $4.30 on Monday, November 25. Data from the study showed that volunteers who took the drug in the company’s phase 3 trial performed no better in cognitive or everyday-life activities than volunteers on the placebo.

If an investor had shorted SAVA on Friday, they could have netted a return of over 80% on Monday when the results were released. Interestingly, Martin Shkreli, the infamous “pharma bro” who was sentenced to prison for securities fraud in 2017, published a 38-page paper on why simufilam, Cassava’s drug, couldn’t possibly work, and he predicted that the stock would trade to the company’s cash value of $2 to $3 per share.

I've written a 38 page paper on why Cassava Sciences' ($SAVA) simufilam does not work for Alzheimer's disease. This is a work-in-progress. But, I don't *think* it doesn't work. It is impossible for it to work.

Long thread (1/7)
— Martin Shkreli (@MartinShkreli) November 21, 2024

Regardless of your opinion on Shkreli’s past business practices, the man knows biotech stocks better than most. He has spent the better part of his career 1) shorting biotech stocks while working for/running hedge funds, and 2) managing pharmaceutical companies, giving him detailed domain knowledge. Anyone who read his report and shorted the stock accordingly would have made a lot of money. Not bad!

It’s no surprise, then, that hedge funds have decided to try to capture some of this alpha. I imagine it’s a pretty easy sell. You just approach doctors who have been on the operating table for a few years and say, “Hey, we’ll pay you ___ million dollars to help us figure out which of these pharmaceutical trials are legit and which ones are fake.” If you’re a doctor who is tired of the grueling schedule in the operating room, doesn’t want to deal with the ins and outs of the healthcare system, and would like a (likely) pay increase, it’s kind of a no-brainer, no? Plus, it’s probably a good culture fit:

“‘The prospect of falling rates has seen multi-strategy hedge funds ramp up their hiring in healthcare,’ Freddie Stacy, co-founder of recruitment firm Sheridan Executive, said…
‘Ex-doctors are attractive because if you can deal with the kind of extreme trauma seen daily by the medical profession, you can certainly handle draw-downs on a trading floor.’”

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Luke Kawa2h

US job growth crushes estimates in March, with the unemployment rate unexpectedly dipping to 4.3%

US hiring surged in March, with job growth of 178,000 well ahead of estimates while the unemployment rate unexpectedly edged down to 4.3%.

Economists had anticipated non-farm payrolls growth of 65,000 for the month with the unemployment rate holding steady at 4.4%

Event contracts had presumed that job growth would come in between 70,000 and 80,000, a sunnier view than Wall Street.

Prediction markets had anticipated roughly 70% odds that the unemployment rate would hold steady at 4.4%, with a much higher implied likelihood of an increase versus a decrease.

(Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.)

S&P 500 equity futures, which were modestly negative ahead of the report in thin holiday trading, were little changed in the immediate aftermath of this release. Treasury yields jumped, with the 10-year yield rising to 4.35% from 4.31%.

The inflationary impact of the higher crude prices in the wake of US-Israeli attacks on Iran and the subsequent challenges shipping oil through the Strait of Hormuz has been the dominant macroeconomic development of the past month, rather than US labor market data.

Before the conflict began, roughly 60 basis points of easing by the Federal Reserve was priced in for 2026. Heading into this release, that’s slimmed to just 5 basis points as US gas prices jumped above $4 per gallon.

The Federal Reserve’s “dot plot” from the March meeting still suggests that officials think it will be appropriate to lower the policy rate this year if the economy unfolds in line with their expectations.

The February jobs report had been a big disappointment, with jobs unexpectedly contracting and the unemployment rate edging higher. With this release, the February figures were revised to show an even larger decline of 133,000.

Strikes which had weighed on employment in health care during February, a critical source of US employment growth in recent years, seemingly reversed. The industry accounted for more than half of net job growth for March.

Tasha Matsumoto

18h

Stocks eke out gains on hopes for a path forward for reopening the Strait of Hormuz

Stocks rebounded on news that Iran is drafting a protocol with Oman to “monitor transit” through the crucial Strait of Hormuz.

Matt Phillips20h

AI server cluster maker Penguin Solutions takes flight

Small-cap AI server cluster maker Penguin Solutions surged Thursday after posting better-than-expected Q2 revenue and profit numbers Wednesday after the close, along with an increase in full-year sales and profit guidance.

The company, which was known as Smart Global Holdings until July 2024, has positioned itself as a provider of “end-to-end AI infrastructure solutions.”

Its Advanced Computing division designs and sells computers, cabling, and cooling systems, the server racks and clusters of racks AI data centers need. Its other main division sells flash and DRAM memory products.

It’s a pretty small company, with a fully diluted market cap of just over $1 billion and roughly 2,900 employees, according to FactSet.

The stock is volatile. Penguin dove during last year’s tariff tantrum that followed “Liberation Day” in April. Then it turned tail and doubled through early October amid a surge of call options activity, which tends to reflect retail interest. From the October peak, it then plunged by about 50%, before Thursday’s renaissance.

For what it’s worth, call options activity in Penguin is pretty busy today, too — relatively speaking — with roughly 2,625 traded as of 1:15 p.m. ET. That’s the most since early January, when the company last reported quarterly numbers. The average volume over the previous 25 trading sessions is about 325 calls a day, FactSet data shows.

Penguin Solutions Stock Takes Off On AI Bolstered Outlook

The company, which was known as Smart Global Holdings until July 2024, has positioned itself as a provider of “end-to-end AI infrastructure solutions.”

It’s a pretty small company, with a fully diluted market cap of just over $1 billion and roughly 2,900 employees, according to FactSet.

Luke Kawa23h

Momentum returns to optics stocks as the release valve for AI optimism

Potentially imminent end to the war? Buy optics stocks.

Maybe not? Buy optics stocks anyway.

Effectively all the juice left in the AI trade is coming from optics (and memory) stocks. And the latter group is taking a bit of a breather today while the former continues to surge.

Shares of Ciena Corp., Lumentum, and Coherent are building on recent big gains and among the biggest gainers in the S&P 500 near midday, while Applied Optoelectronics is also surging on Thursday.

These companies all provide solutions that help information move around in data centers, and thus are key beneficiaries of the aggressive capex plans of hyperscalers. Nvidia has invested $2 billion apiece in Coherent and Lumentum in deals that also include purchase commitments.

Matt Phillips23h

Space stocks rip during a topsy-turvy day for the equity market

Satellite-services-from-space stocks surged Thursday after reports that Amazon is in talks to buy Globalstar, which provides voice and connectivity services from its satellite network. It also can’t hurt that the general mood around space is ebullient, following the successful launch of Artemis II on Thursday.

Planet Labs and ViaSat also soared on the news.

The gains for EchoStar — seen as a backdoor play at pre-IPO SpaceX exposure — and Rocket Lab were more muted, perhaps because a deep-pocketed competitor like Jeff Bezos getting serious about space services could complicate the plans of the two largest commercial space launch companies.

Rocket Lab and SpaceX see launch services as key to their aspirations of being major providers of voice and data services from low-Earth orbit satellites.

Tesla CEO Elon Musk’s SpaceX is the dominant provider of such services, and the early rumors on the company’s planned IPO — expected to be the largest ever — suggest the market is very excited about the prospects for the industry.

Elsewhere in the space stock world, Intuitive Machines — a maker of space infrastructure that provides services to NASA for lunar missions — also rose.

Globalstar surges after FT reports that Amazon is in talks to buy the satellite group

Rocket Lab and SpaceX see launch services as key to their aspirations of being major providers of voice and data services from low-Earth orbit satellites.

Elsewhere in the space stock world, Intuitive Machines — a maker of space infrastructure that provides services to NASA for lunar missions — also rose.

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