Will the poor performance of biotechs in January be a barometer for 2022? Look to 2016
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If you believe in the idea of the January Barometer -- that returns in the first month of the year are a bellwether for performance for the rest of the year -- then biotech investors better buckle their seatbelts.
The iShares Nasdaq Biotechnology ETF (IBB
+1.2%) finished off last month with a loss of 13.6%. The last time it performed that poorly was 2016 when it had a loss of 18.3%.
Performance was even worse with the SPDR S&P Biotech ETF (XBI
+1.3%) as it was down 19.1% last month, also its worst January since 2016 when it lost 25.5%. The ETF hit a 21-month low late last month.
In 2016, the January Barometer theory held true, at least for biotech stocks. IBB ended the year down 18.8% while XBI was down 12.7%.
Interestingly, the S&P 500, which also faltered at the beginning of January 2016, recovered and finished off the year up 13.7%, bucking the Barometer.
So, what's going on with the biotech sector? The first thing to note is that January's stinker is not a short-term phenomenon. The sector as a whole has been flailing for about the last year.
Even biotech names that were darlings in early 2021, buoyed by COVID-19 -- BioNTech (BNTX
+4.2%), Moderna (NASDAQ:MRNA
+2.3%), and Novavax (NASDAQ:NVAX
+1.6%) -- peaked in August, and then hit a brick wall, declining since then.
In the case of those three, a feeling of overvaluation may have taken hold. In addition, as they all have just one product to market -- COVID-19 vaccine -- there are fears that with the pandemic waning in many parts of the world, demand for the shots may not be as great as initially anticipated.
But what about biotechs that don't have a part in COVID-19? Why have they been in a rut? They may be feeling the pinch from a variety of factors, including the threat of drug pricing reforms in a Biden presidency, as well as impending patent expirations on some of their key products.
Further, as growth stocks, any potential increase in interest rates via the Federal Reserve would have a profound impact on biotech companies. And those conversations have been going on since well into last year.
Key holdings in IBB: Amgen (NASDAQ:AMGN
-0.2%), Gilead Sciences (NASDAQ:GILD
-0.8%), Regeneron Pharmaceuticals (REGN
-0.1%), Vertex Pharmaceuticals (VRTX
+0.1%), and Illumina (ILMN
+2.1%).
Key holdings in XBI: Arena Pharmaceuticals (ARNA +0.8%), Biohaven Pharmaceutical (BHVN
+1.2%), Cytokinetics (CYTK
-3.0%), Turning Point Therapeutics (TPTX
+2.1%), and Fate Therapeutics (FATE
-1.9%).
XBI has a short interest percent of float of 57.7%, according to data from S3 Partners, the second highest among U.S. ETFs.