- The market is becoming more comfortable with risk as evidenced by the rise of the small cap index to a new all-time high.
- Biotechs have lagged in market performance even though they are in a better position than at any other time in the last three years.
- ASCO can provide a strong and positive news flow and be a potential catalyst for higher valuations.
- Biotech stocks remain well-positioned as key themes for higher valuations remain in place, along with the industry’s long-term track record of outperforming broader market indexes.
- A prudent allocation to the biotech sector can assist long-term portfolio returns.
Small Caps, a speculative segment of the market as opposed to mid and large caps, has made new highs. Can Biotechs be far behind?
Last week, we further discussed the leading role that small caps have assumed in the article Small Caps Charge Augurs Well for the Stock Market. The new all-time highs recorded by the small cap index Russell 2000 (IWM) over the past two weeks is leading the relatively muted performance of the broader market indexes like the Nasdaq (QQQ) and S&P 500 (SPY), which still have to achieve that milestone since the pullback in March.
The rise of the small cap stock indexes at this juncture suggests an underlying healthy risk appetite that is recovering and strengthening after the highly volatile period from February to April. It is just a matter of time before the Nasdaq records new highs as well, driven by the earnings strength of technology companies, and eventually followed by the S&P 500.
In an environment being led by a market rotation into lagging speculative segments, biotechs stocks should not be far behind in gaining investor interest, particularly the small and mid caps. And the largest oncology conference next month may just be the catalyst to get things moving.
ASCO 2018 Annual Meeting
The ASCO annual meeting, the biggest oncology event in North America, gets underway from June 1 to 5. The event typically creates significant news flow in oncology, the biggest drug research segment in biopharma, and is often also used as a platform to announce major partnerships and deals.
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