Biotech ETFs were initially among the biggest winners of Donald Trump’s surprise election win last month, but the early euphoria has now turned to a massive sell-off once again. From a technical, fundamental, and political standpoint, it’s probably safe to say that biotech is back out of vogue, and investors should tread very carefully here as we approach the end of the year.
The comments above and below are excerpts from an article by etfDailyNews.com which has been edited ([ ]) and abridged (…) to provide a faster and easier read.
Take a look at the three-month chart for the iShares NASDAQ Biotechnology Index ETF which is the largest biotech-focused fund with nearly $8 billion in assets under management:
The IBB has also plunged through its 200-day moving average, which is a key technical level that, when violated, tends to results in even deeper selling. IBB had spiked above the 200-day MA just after the election.
Once up 12% from its pre-Election Day levels, IBB is now only 3% above those prices so the natural question is, what’s driving this pullback?
What’s Driving the Biotech Pullback?
Well, a recent string of major drug failures certainly hasn’t helped. The biggest of those drug malfunctions was Eli Lilly’s Alzheimer’s drug trial failure. The fallout from that mess spread to Biogen as well, and neither stock has recovered much — if at all — since then.
…Perhaps the biggest issue affecting biotechs right now, [though,] is the fact that Donald Trump may not be that bullish for the drug industry after all.
Allergan’s CEO, Brent Saunders, wrote just yesterday that it’s unlikely a Trump presidency will shift public scorn away from high drug prices saying: “Let’s not fool ourselves. The outcome on November 8 didn’t change the fact that many Americans are angry about the rising cost of healthcare and their medicines. This anger will fuel the discussion about affordability well into the future.”
Saunders also noted that the “whole industry is under attack,” and “the election results don’t change that debate” so, from a technical, fundamental, and political standpoint, it’s probably safe to say that biotech is back out of vogue, and investors should tread very carefully here as we approach the end of the year.