While all investors are likely concerned about the fallout from a potential FOMC interest rate hike as early as September, perhaps no demographic of the investing world is more concerned than biotech shareholders. Biotech stocks have long been seen as high-risk/high-reward stocks. Therefore, should biotech investors be worried about the potential “risk-off” trading environment following the Fed’s first rate hike?
Historical Correlation
Bank of America analyst Ying Huang looked back at the sensitivity of the Nasdaq Biotechnology (INDEX: NBI) index and large-cap biotech stocks Amgen, Inc. AMGN 1.2%, Celgene Corporation CELG 0.43%, Biogen Inc BIIB 0.03% and Gilead Sciences, Inc. GILD 0.83% to interest rate hikes over the past 20 years.
According to Huang, there is no negative correlation between higher interest rates and biotech stock performance. The NBI actually outperformed the S&P 500 significantly during the period of interest rate hikes from June 1999 to June 2000. Although the NBI underperformed the S&P during the rate hike period from June 2004 to July 2006, Huang calculated only a weak correlation between the rate hikes and the NBI.
Large Caps, Less Sensitivity
Huang’s analysis of large-cap biotech stocks showed…
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