Tracking the Biotech Bounce

By Greg Guenthner Jun 10, 2014, 4:01 PM 

Biotech buyouts are coming. But no one’s paying attention…

New record highs for stocks are instead sparking refreshed arguments from economists and analysts alike. They want to debate peak valuations or whether or not we’re entering a “Goldilocks economy” where growth is not too hot, not too cold—but just right.

But all of the debate about how hot the economy will run for the rest of the year is distracting you from a couple of critical developments in the stock market.

The first (and potentially most important) trend you need to watch is the biotech comeback.

You know the drill…

Earlier this year, biotechs rocketed higher. The sector posted 30%-plus gains during the first eight weeks of the year. Almost every single day, a different biotech would easily rise double-digits. And while this was an active trader’s paradise, these stocks did end up getting a little ahead of themselves.

But now, we’re seeing a strong resurgence in the biotechs. In just a few weeks, these stocks have gone from losers back to winners. As of this morning, the biotech sector is up more than 12% on the year, compared to gains of just 5.5% in the S&P 500…

Now, the buyouts are back. Yesterday, a small-cap biotech called Idenix Pharmaceuticals (NASDAQ:IDIX) jumped by 229%. ‬

Yes, in one day…‬

How did this happen?

Well, pharmaceutical giant Merck (NYSE:MRK) agreed to pay $3.8 billion to acquire the company in full. Not only did Idenix stock shoot way up– almost every small to mid-size biotech stock went up because of the Merck – Idenix acquisition news.

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