Markets appeared to be calming on Monday, with two weeks of volatile action giving way to a modest gain for the major indices. Aside from one brief dip that took the Nasdaq Composite as low as 4,081.91, the markets rose steadily for most of the day and finished up, with the Dow Jones Industrial Average (DJIA) gaining a quarter percent, the S&P 500 up 0.38 percent, and the Nasdaq 0.64 percent.
However, among the day’s biggest gainers were biotech stocks, giving reason to believe that investors, previously looking skittish on growth stocks and ready to sell them off in favor of a new risk-off environment, may be returning to biotech looking for bargains.
One potential indicator of this might be the spread between the Dow Jones and the Nasdaq. The Nasdaq is home to far more small-cap stocks, biotechs, and tech growth plays than the venerable old Dow Jones, so it’s nearly 0.4 percent advantage on the day likely indicates that it’s the same growth stocks that were getting hammered the last two weeks were recovering today.
And a look at the leading biotech ETFs would indicate that there’s likely some truth to this. Among the day’s top performers among non-leveraged ETFs was the SPDR S&P Biotech ETF (XBI) , which gained 2.46 percent. The iShares NASDAQ Biotechnology Index ETF (IBB) jumped 2.33 percent, and the SPDR S&P Pharmaceuticals ETF (XPH) climbed 2.47 percent.
These big gains are also notable because several of the other ETFs and indices tracking key growth stocks showed more modest gains that were largely in line with the broader market moves. The iShares Russell 2000 Growth Index ETF (IWO) gained 0.66 percent, the Vanguard Small-Cap Growth ETF (VBK) gained just 0.48 percent, the PowerShares Nasdaq Internet Portfolio (PNQI) rose 0.66 percent, and the SPDR S&P Technology Select Sector ETF (XLK) was up only 0.39 percent.
This divergence between biotechs and the other growth plays is notable. During the shaky market conditions last week and the week before, while biotech tended to have heavier losses, it also tended to move in a similar fashion to other growth stocks, with both shifting more than the broader indices. On Monday, though, biotechs were running, and running hard, while the rest of the growth and small-caps were moving at a pace in line with the broader markets.
While it’s clearly too early to tell, Monday’s gains would certainly seem to indicate that markets hit a hard bottom at mid-day on April 15, and catapulted off of new lows to recover to a gain. If investors that sold stocks during the sharp downturn start to believe the markets have found a bottom and the correction is over, it could mean a continued run for biotech ETFs.
Thus far in the month of April, the XBI is down 9.83 percent and the IBB is off 3.83 percent, but both have recovered since the 15th. Since 1 pm ET on April 15th, IBB is up over 9.5 percent and XBI has gained over 11.25 percent.
However, looming on the horizon is May 1, start of the “worst six months” to own stocks. If investors stick to the old adage of “sell in May and go away,” that could mean that this current upswing is just a hiccup before a longer, stronger correction takes hold.
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