Is Biotech’s Bull Run Over? Examining Election Impacts

Key Points

• The biotech sector's breakout attempt post-election reversed sharply, with ETFs like IBB and XBI falling and invalidating the long-term bullish setup.
• RFK Jr.'s appointment to lead the Department of Health and Human Services has spooked investors with his controversial policies and vaccine skepticism.
• Sector giants like Pfizer may offer value and a high dividend yield at current levels, but the sector's outlook remains risky and uncertain.

The biotech sector recently experienced a sharp reversal following a failed breakout attempt post-election. While most areas of the market surged to new heights after Donald Trump’s election win on November 5, biotech ETFs like the iShares Biotechnology ETF NASDAQ: IBB and the SPDR Biotech ETF NYSE: XBI stopped short of new 52-week highs. This false breakout has sparked significant selling, leaving investors questioning whether this represents a buying opportunity or a reason to exit the sector entirely. Let’s dive deeper into the developments.

Significant Consolidation Leading up to the Election

Leading up to the election, the biotech sector appeared poised for a breakout. The IBB and XBI ETFs had been consolidating near key moving averages and within multi-month ranges, presenting an enticing setup for investors. With Trump’s pro-business stance and history of deregulation, many anticipated a positive reaction in the sector post-election. Initially, that prediction seemed accurate, as the XBI broke above its critical $100 resistance level, briefly holding above prior highs.

However, this move quickly reversed, with the XBI plummeting nearly 11% in just one week and down 8% for the month. The failed breakout has turned prior resistance into significant overhead supply, dramatically shifting the sector’s risk-reward profile. What once looked like a momentum-driven rally now raises concerns about the sector’s near-term trajectory. For now, the technical case for a bullish breakout appears invalid, leaving some investors to wonder if the sector might soon offer a value opportunity instead.

Biotech Sector Slides on RFK Jr. Appointment

President-elect Trump’s appointment of Robert F. Kennedy Jr. to lead the Department of Health and Human Services (HHS) is a significant catalyst behind the recent sell-off. Kennedy, a controversial figure known for his skepticism toward vaccines, has made bold statements about reshaping the healthcare industry. His criticisms of drug companies for "deception, misinformation, and disinformation" have sent shockwaves through the biotech space.

Kennedy’s proposed policies, which include purging the Food and Drug Administration (FDA), removing fluoride from public water supplies, and reducing reliance on ultra-processed foods, have raised questions about the regulatory landscape. Vaccine manufacturers were particularly hard-hit after the announcement, with Moderna NASDAQ: MRNA and Pfizer NYSE: PFE losing 7% and 4.5%, respectively, on the news. Moderna’s stock has dropped nearly 30% since the election, while Novavax NASDAQ: NVAX, another vaccine producer, has also faced selling pressure.

J.P. Morgan analysts noted that Kennedy’s oversight of agencies under the HHS, including the FDA, CDC, NIH, and Medicare/Medicaid, introduces significant uncertainty for the sector. While the long-term implications remain unclear, the short-term reaction reflects heightened investor caution.

The Bottom Line

The biotech sector’s narrative has shifted dramatically in just a few weeks. Once on the cusp of a multi-month breakout, the sector now faces mounting uncertainty and technical weakness. Popular ETFs like XBI and IBB are far from their recent highs, with many top holdings, including Pfizer, trading at or near 52-week lows. Pfizer’s case highlights the potential value emerging from the sector’s decline. With a forward P/E of 8.34 and a dividend yield of 6.78%, the stock may warrant consideration for investors willing to accept the risks tied to Kennedy’s policies.

While it’s too early to assess the full impact of Kennedy’s appointment on the biotech industry, one thing is clear: the bullish technical setup has evaporated, leaving the sector in a precarious position. Investors should proceed cautiously, focusing on potential value plays while remaining mindful of the risks. For now, the sector’s failed breakout signals a pause rather than a green light for broad buying.