Resources/Weekly Insights

Volume 14, Edition 35 | November 10 - November 16, 2025

A Biotech Lesson in Patience

Doug Walters, CFA

After years in the shadows, biotech stocks have surged—up 65% since April, outpacing the S&P 500. We look at what’s behind the rally and how the sector fits in an evidence-based investing framework.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Gold has stolen many headlines over the past year, given its continued rally. One dynamic caught in gold’s shadow is the resurgence of biotech stocks. Over the past six months, biotech stocks have staged an impressive rebound after years of languish. Why now? And why should evidence-based investors care?

Biotech and Evidence-Based Investing

So first a little primer on our particular interest in Biotech. The sector can easily be overlooked by evidence-based investors like us. We put big emphasis on proven persistent factors like quality, value, momentum and size. “Multifactor” funds look to identify stocks with a good balance of these factors. But Biotech stumbles on these measures. Early-stage biotech often would appear as low quality (they’re volatile and have weak balance sheets), and they would appear expensive as they are not yet producing revenue. As individual holdings, each can look quite poor. But as a sector basket, our research shows Biotech to be an attractive long-term holding. With Biotech, the hope is not that each holding in the basket is a winner, but rather that there are enough big winners to offset the inevitable failures.

So, yes—we often add Biotech to our evidence-based strategies despite failing the factor tests. In particular, we have favored equal-weight exposure so that we can benefit from the innovation wins of smaller start-ups.

Covid Hangover… and a Long-Awaited Rally

But it was a rough run for Biotech in the aftermath of the Covid run-up. In the months that followed as the Covid fervor waned and higher interest rates caused funding to become much more expensive. The sector shed 50% of its value between 2021 and early 2022.

After five years of underperformance, Biotech is once again showing signs of life. The S&P Biotech Select Industry Index is up 65% since early April, nearly doubling the impressive 34% rally of the S&P 500. Several factors have converged to lift Biotech valuations. Interest rates have fallen a bit, and expectations are for that to continue. But perhaps more importantly, there has been a big uptick in acquisitions by larger players. Deal flow this year will be more than double last year’s total.

The AI Connection

While biotech didn’t participate in the initial AI-driven rally that propelled mega-cap tech stocks, it has the potential to be a longer-term AI beneficiary. Artificial intelligence is transforming drug discovery by accelerating target identification and molecule design, potentially reducing development timelines and costs. This structural tailwind is reshaping long-term investor perception, even if it’s not the primary driver of recent gains.

A Lesson in Patience

Biotech reminds us why patience matters. Evidence-based investing isn’t about timing sentiment swings—it’s about maintaining exposure to segments that historically add value to diversified portfolios. Biotech has been one of those segments.

2.19%

Return of the S&P 500 during the government shutdown

2.19% might not sound like much to write home about, but that’s over just 43 days… and would amount to around 20% if annualized.

Headline of the Week

From Relief to Reality: Markets Shift Focus

Markets exhaled briefly when the government shutdown ended, but that sigh of relief didn’t last long. Attention quickly pivoted to deeper questions about the sustainability of the AI boom.

AI has been the market’s growth engine this year, but cracks are starting to show. Investors are asking whether the massive spending on data centers, chips, and supporting infrastructure can deliver reasonable returns. The conversation isn’t just about dollars; increasingly, it’s about execution. Building the AI backbone at scale faces real-world constraints: power, water, and construction. These aren’t abstract risks; they’re tangible bottlenecks that could slow deployment and stretch payback periods.

For now, the tone has shifted from euphoria to evaluation with a more sobering question: can the promise of AI keep pace with the price tag and the practical hurdles? Markets seem to be signaling that the next chapter may be less about hype and more about proving the math works.

The Week Ahead

After a 43-day shutdown, federal data crunchers can start tabulating economic releases. However, when we get the data is still unclear. We are not going to sugarcoat the situation and pretend that markets will take their cue from the UK’s or Japan’s Consumer Price Index, everyone will be watching one specific earnings report on Wednesday evening.

Big Stage

The biggest Company in the world, with a market cap of roughly $5 Trillion, reports earnings on Wednesday.

Analysts’ expectations are that Nvidia will report $1.25 in earnings for the 3rd quarter, a nearly 54% increase.
Fourth quarter guidance is more important, and expectations are that earnings will increase to $1.42 per share on $61.4 Billion in revenue.
The chipmaker has a history of beating Wall Street expectations, with investors accustomed to $2 to $3 Billion beat on revenue; this is over Nvidia’s own guidance.
With that kind of track record, it would take a bigger beat to propel the stock higher after a 35% run so far this year.
With an 8% weighting in the S&P 500 index, the stock’s movement will sway the entire market on Thursday.

Minute by Minute

The Federal Reserve’s October meeting minutes will be released Thursday.

After the press conference from Chairman Powell, the minutes are expected to have a hawkish tone.
The December rate cut is not certain, and any hints of where the committee stands will be used to adjust the odds.

Shopping Around

Nvidia may be the star, but next week brings earnings reports from some of the biggest retailers.

Wal-Mart, Target, Lowe’s, Home Depot, TJX, and Ross Stores are all on the calendar next week.
Investors will look for hints of where the U.S. consumer is and look for guidance on what to expect for the Holiday shopping season.

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