As bankers and investors were getting their Monday afternoon pick-me-up coffee, they might have noticed a slight upswing in the biotech industry’s main stock index.
For an approximately 70-minute window on Monday afternoon, the $XBI floated above the $100 mark for the first time since early March, but it closed at $99.90.
Then on Tuesday, it rallied again, rising to about $101.75 in afternoon trading before closing at $101.85.
Tuesday’s gains follow an 8% rise in the closely-watched biotech ETF last week, the best five-day stretch of the year for the XBI, according to Raymond James bankers. Stifel’s tracker of global biotech enterprise values was up 12.6% during the same period.
The XBI’s top five positions are Sarepta, Alnylam, United Therapeutics, Amgen and Exact Sciences. On June 21, the XBI changed its methodology, no longer equally weighing stocks regardless of size or price. That means “bigger cap liquid stocks are mostly driving the performance,” Jefferies analyst Michael Yee wrote in a July 12 note.
The $100 figure may seem arbitrary. It is a pretty round number. But it’s a “critical level for the market,” as the Raymond James bankers pointed out in an update on Sunday night, “both psychologically as well as technically for traders.”
The market has oscillated in 2024, with non-stop seesawing that began with brighter days at the JP Morgan Healthcare Conference in January and what felt briefly like a historic moment on Feb. 27, when the XBI eclipsed $100 for the first time in years. But reality sank in again when the prospect of interest rate cuts dimmed.
Tim Opler“Since mid-April, the situation has markedly improved,” Stifel’s Tim Opler wrote Sunday. “Last week’s negative CPI inflation number was particularly notable and foretells a strong biotech tape to come.”
As the first interest rate cut comes into focus (though there’s no firm timeline from Federal Reserve Chair Jerome Powell), the XBI appears to be on the mend. Investors are “comfortable” with the Fed’s trajectory, and they also believe a rally no longer depends on as many cuts as previously anticipated, according to Raymond James bankers.
“We expect the window for biotech to remain constructive throughout the summer with the presidential election the most obvious next source of volatility as we get into fall,” they wrote.
Still, biotech sentiment isn’t all upbeat. At the midyear point, it’s a “5 out of 10,” Opler wrote. A recovery can still occur this year, but “it will continue to be bumpy,” he added. All told, Stifel bankers predict the XBI will finish 2024 “well over” $100.
Editor’s note: This story was updated to include Tuesday’s closing share price.