Stock Analysis | Merck Outlook - Bearish Technicals and Tariff Fears Cloud Near-Term Prospects

Merck Outlook - Bearish Technicals and Tariff Fears Cloud Near-Term Prospects

Market Snapshot: Merck shares have underperformed recently with a price decline of -3.80%, while technical indicators remain bearish and suggest a weak market environment.

News Highlights

Recent developments in global trade policy have directly impacted the pharmaceutical sector. On July 27, the U.S. announced a 15% tariff on branded pharmaceutical products imported from the EU, marking a shift in the industry’s geopolitical immunity. President Donald Trump has further escalated tensions, promising to raise tariffs on pharmaceuticals and semiconductors to up to 250% to boost domestic manufacturing.

These policy shifts are expected to increase drug prices for U.S. consumers, particularly for blockbuster drugs like Ozempic and Wegovy. For Merck, which has a strong global presence, these developments could pressure margins and international sales.

On a more positive note, Madrigal Pharmaceuticals reported strong Q2 2025 results, with Rezdiffra™ sales reaching $212.8 million and a new U.S. patent extending product protection until 2045. While this news primarily affects other players, it highlights the competitive dynamics in the broader pharma sector.

Analyst Views & Fundamentals

Two major analysts have issued recent ratings for Merck:

• Wells Fargo (Mohit Bansal): Neutral rating (July 30). Historical performance: 100.0% win rate, -1.58% average return.
• Morgan Stanley (Terence Flynn): Neutral rating (July 10). Historical performance: 75.0% win rate, -3.24% average return.

While both analysts took a neutral stance, their simple average rating score is 3.00 and the performance-weighted rating is 3.46. This indicates a relatively neutral market expectation, but with some dispersion in the underlying performance of the analysts.

The price trend (-3.80%) has not aligned with the analysts' expectations, suggesting market skepticism or external pressures (like tariffs) are overriding fundamental and analyst-driven signals.

On the fundamentals, Merck’s internal diagnostic scores (0-10) are largely positive:

• Return on equity (ROE): 41.05% (Score: 3.00)
• Return on assets (ROA): 0.76% (Score: 3.00)
• Price-to-sales (PS): 13.81 (Score: 3.00)
• Operating cycle: 216.67 days (Score: 2.00)
• Net profit margin (NPM): 28.01% (Score: 2.00)
• Cash flow from operations to assets (CFOA): 1.33% (Score: 3.00)

Merck’s strong cash flow and return metrics are a positive sign, but the long operating cycle and moderate margins suggest some operational inefficiencies that could be exacerbated by rising costs and trade pressures.

Money-Flow Trends

Big-money investors and institutional players have been cautious with Merck in recent weeks. The block inflow ratio stands at 49.23%, which is just below the 50% neutrality threshold, indicating a net outflow. On a granular level:

• Small investors: 50.54% inflow ratio (positive trend)
• Large investors: 50.33% inflow ratio (positive trend)
• Extra-large investors: 48.70% inflow ratio (negative trend)

This suggests that retail and mid-sized investors remain optimistic, while the largest capital players are pulling back, likely due to the broader geopolitical and trade uncertainty.

Key Technical Signals

The technical outlook for Merck is clearly bearish, with 4 out of 5 key indicators showing negative bias. The internal diagnostic technical score is 2.71, which is far below the neutral threshold of 5.

Key indicators and their scores include:

• Williams %R Overbought: Internal score 1.11 — suggests a weakening overbought condition
• Long Lower Shadow: Internal score 1.00 — bearish price action
• Williams %R Oversold: Internal score 1.00 — bearish divergence
• MACD Death Cross: Internal score 6.62 — one positive anomaly in a sea of negatives
• Earnings Release Date: Internal score 3.81 — mixed performance historically

Recent signals on key dates include:

• July 25: Williams %R Overbought
• July 29: Long Lower Shadow + Earnings Release
• July 31: Williams %R Oversold

This suggests the stock has been trapped in a high-pressure bearish pattern over the last five trading days, with little sign of reversal.

Conclusion

Merck is facing a challenging technical and geopolitical environment. With internal diagnostic technical scores below 3.00 and tariff-related headwinds emerging, the stock looks vulnerable to further downside. While fundamentals remain strong, the combination of bearish indicators and institutional outflows suggests investors should consider waiting for a pull-back or more clarity on trade policies before entering or adding to positions.