Investors still waiting for burst to happen

Q: Is biotech a bubble?

A: Investors are watching the Fed closely this week — and not just because there’s a chance of a hike in short-term interest rates. Investors are also curious if the Fed will talk about stocks — including biotech.

In July 2014, Federal Reserve Chair Janet Yellen first warned investors of what she saw as a biotech stock bubble. In testimony, she said she was seeing a bubble in “smaller firms in the social media and biotechnology industries.”

Even since, investors have been fearing a biotech-stock implosion that never seems to happen. The Nasdaq Biotechnology Index is up more than 400% from the time its powerful rally began back in March 2009, Bespoke Investment Group says. While biotechs have pulled back about 10% along with the broad market the last few weeks, the Nasdaq biotech index still is up nearly 30% over the past 12 months.

Some have drawn parallels between biotech and past bubbles. There was the tech stocks bubble that started in the mid-1990s and homebuilder stocks starting in 2000.

But biotechs haven’t performed anywhere near those two assets. More than 1,600 trading days into the rally, biotechs are up about 400%. At their peaks, the tech heavy Nasdaq 100 was up more than 1,100% and homebuilders were up more than 800%, Bespoke says.