Biotech Stocks: Larger Caps Are Favored Until Momentum Returns

Biotech Stocks are Stalled -Until we get more News and M&A

• On Sep 30, the XBI was up 26.1 % YTD, dropped out of the rising channel at a price of $157, followed by heavy selling on OCT 6, closing at $150.90. Three up days brought the XBI up to $153.77. RSI is now at 46, off a SEP 30 high of 73.

• Around the same day on SEP 30, the IBB, up 22.35% YTD, fell below the upward channel low of $210, then sold off a bit lower but is recovering to the SMA 50 value, where it is now at 206.49. RSI fell from 80 to 50.74.

• The beast of the group, ARKG, is up 77% YTD, rising in a pretty narrow channel up from MAY 20 until the big sell-off on OCT 6 with good volume closing at $51.75. RSI fell from the 70s to 51.98 at Friday’s close.

Biotech stocks in general have been strong performers in 2026, beating the major indices beginning in early JUNE. The major theme behind the outperformance has been genomics and Precision Oncology. For the next few months, there is an expectation that the M&A trend will continue as larger biopharma companies acquire technology and products at various clinical stages to bolster their pipelines. Recently, for example, we have seen the following deals:

1. TEMPUS collaboration with Merck and Moderna on mRNA for Melanoma and other cancers.

2. Viatris boosts pain drug portfolio with Pacira Sciences acquisition.

3. Biomarin (BMRN) acquiring Alesta Therapeutics for $250M.

Biotech stocks come in many flavors and sizes, from large-cap biopharmas like AbbVie (ABBV) and Merck (MRK), technology platforms like MRNA vaccines, novel oncology drugs like Revolution Medicine (RVMD) for treatment of pancreatic cancer, and broader applications of DNA sequencing for cancer diagnostics. A core position in any biotech portfolio should be Large Cap Biopharma. Here are some of the widely held companies:

We recently added Biogen (BIIB) to our portfolio. BIIB has an RSI of 56 and an analyst rating of 1.9 (buy).

• THE S&P 500 Equal Weight (RSP) is up 11.6% YTD, still lagging the market-weight (SPY) SPDR S&P 500 up 14.06%. Because of the larger market caps of AI technology stocks/

One of the leading Health Science and Technology Funds we hold is the T.Rowe Price (PRHSX) that shows a good balance of large and SMID cap biotech holdings and is up about 30% over one year.

We still believe SMID biotech stocks can break out to new highs before the end of the year, but we need momentum from some of the leaders, for example: ILMN, NTRA, XNCR, or a re-acceleration in the XBI or the Russell (IWM) 2000, which has stalled at only 13.34% YTD, and is lower than the SMA 20 and SMA 50 averages. On Friday, we bought into the IBB because of the overweighting of larger-cap stocks.

For Momentum to come back to SMID biotechs, we probably need to see money coming out of AI and technology stocks (XLK), up 36% YTD, and into Healthcare stocks ( XLV), up 10.8% YTD.