The Next Leg of This Powerful Rally Starts NOW!
We called it our boldest prediction of 2017…
After more than 18 months of pain, the biotech bull is finally springing back to life this year.
Most investors are distracted by Trump’s tax talk as we barrel toward the end of the trading week. That gives the market the perfect smokescreen for the next round of biotech gains.
The health care sector has already survived its first big sentiment test of the year. Just a few short months ago, Trump complained about astronomical drug pricing during a White House meeting with a group of pharmaceutical CEOs.
The pharmaceutical industry has found itself in the crosshairs of politicians on both sides of the isle. Both the Clinton and Trump campaigns temporarily derailed biotech stocks during campaign season. Back in January, Trump condemned the massive drug price increases that have made headlines over the past year. He also took issue with where these drugs are made, telling industry leaders that they need to expand U.S. manufacturing.
Most market watchers thought the intense scrutiny couldn’t possibly be bullish for Big Pharma.
But the reaction from the market was muted. As far as we were concerned, the drug pricing scandals officially jumped the shark. For months, price gouging soundbites sent health care and biotech stocks into a tailspin.
Not in 2017.
The health care carnage is over. Thanks to the frenetic pace of Trump’s legislative agenda, our pharma woes were short-lived.
Now it’s time for the next leg of this a powerful rally to materialize.
The charts don’t lie. After weeks of lackluster action, the biotech bull is finding new life. The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) has powered higher every single day so far this week. That snaps the big biotechs out of their funk and paves the way for the next leg higher…
With biotechs snapping their skid this week, the sector is primed to attack its March highs. The rally off the November bottom hasn’t been perfect, but IBB has managed to post gains approaching 17% over the past six months. Even with the deep pullbacks and false starts, this performance still tops the S&P 500 over the same timeframe.
The outperformance we’re seeing right now is telling. Not only have biotech stocks remained vulnerable to political attack related to the drug pricing scandals that made headlines last year – they’ve also had to dig out of a nasty bear market.
2016 was a rough year for biotech and health care. Even after bouncing off its winter lows, the group underperformed every other major sector on the market in 2016. In January, we noted that the Health Care Select Sector SPDR had just registered its first annual loss since 2008.
That’s where the first signs of a major bounce materialized.
Health care and biotech stocks were the strongest names on the market during the first week of January. But they weren’t ready for prime time just yet. After a few more weeks of consolidation, we finally saw the breakout we were waiting for.
Out of all the noise that’s distracting investors this week, the biotech breakout is the most interesting development by far. One of our boldest 2017 predictions is beginning to come true: After all the pain and suffering, the biotech bulls are back!