Investors Have Completely Abandoned Biotech Stocks
The stock market has staged a quick and massive recovery in recent weeks.
We're now darn close to hitting new all-time highs once again... something that seemed impossible just a few weeks ago.
Not every part of the market is recovering, though. The notorious boom-and-bust biotechnology sector is closer to hitting new lows for 2025 than new highs. And that's nothing new.
Biotech stocks have been dead money for years. And now, investors are really giving up on the sector.
That negative sentiment alone won't cause a recovery. But it tells us that when the recovery does begin, it'll be a big one.
Biotech is one of the most exciting areas of the market. These companies come up with life-changing medical breakthroughs. And when they succeed, they can generate quick and massive gains for investors.
But when they tank, the busts can last longer than you'd probably expect.
The chart below illustrates what I mean. It compares the performance of the iShares Biotechnology Fund (IBB) with the S&P 500 Index since 2015. Take a look...
The S&P 500 is up about 241% over the past decade. Meanwhile, biotech stocks have been in a deep freeze... They're up just 7% over the past 10 years.
Investors Bail on This Boom-and-Bust Sector
Sure, there have been ups and downs along the way. But overall, this sector has gone nowhere. And unsurprisingly, investors have given up on it.
We can see this by looking at IBB's shares outstanding...
As an exchange-traded fund, IBB can create and liquidate shares based on investor demand. When folks are excited about biotech and buy IBB, the fund creates more shares to meet the demand. But when everyone's selling, it liquidates shares, and the overall numbers drop.
That's exactly what happened over the past decade. Take a look...
IBB's shares outstanding have done nothing but fall over most of the past 10 years. They've dropped by about one-third over the past three years... and by double digits in 2025. That's a clear sign of investor apathy.
Of course, this kind of sentiment washout won't trigger a reversal on its own. Biotech stocks need to deliver. Only then will momentum return and prices move in the right direction.
Still, the massively negative sentiment tells us that few investors own these stocks today. That means there will be a lot of potential buyers when this sector inevitably moves from a bust to a major boom.
Good investing,
Brett Eversole
Further Reading
"When you let your emotions take over, you often rush into decisions that you'll regret later," Whitney Tilson writes. Letting your emotions rule your investing is one of the biggest mistakes you can make – but a simple three-step process can help you make smarter investing decisions.
"It's easy to 'doomscroll' through all the negativity," Pete Carmasino says. There's plenty of uncertainty in the market today. But if you sit on the sidelines, you might miss some excellent potential opportunities.
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