Be honest.
Who had XBI goes up today on their bingo card?
Japan and China fell over night. Mercifully for Koreans, Korea is on Holiday today. Numerous FOMC voters proclaimed their strong stance on murdering inflation. The 30Yr T is still above 5%.
US Future puked, QQQ was down over 2% within minutes of open and XBI ended up 1.5% anyways.
Miraculous, right?
If you look at XBI over the last year what do you see? The time-frame appears to show two things. (1) XBI is inversely correlated to interest rates and (2) the recent FDA change is good for biotechs.
On the surface this leads to a possible conclusion that interest rate cuts might be a headwind for biotechs. Or that we might be due for a retracement to the market. But, as each FOMC member made comments the XBI just chugged along.
Weird.
Let’s zoom out.
This gives a better view. I have charted since XBI reindexed. Prior to that change you can not really make any comparisons. Repeat you should not compare the XBI before the reindexing to after the reindexing. If you don’t know what I am talking about here ask your friendly LLM or read here.
Biotechs (pharma in general) began to sell off when Trump nominated RFK Jr and the market dragged the sector behind until recently. The recent year’s growth is just an Uma Thurman joke.
Prior to the recent FDA news the XBI, IWM and QQQ were all basically even money again. No one was winning the race
The only thing now standing out is the FDA news. What does this mean going forward considering interest rates really do need to rise unless PCE somehow has fallen off a cliff.
It means I can continue to hedge macroeconomic news without paying the illiquidity premium embedded in XBI options.
— AJ
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