Biotech Sector May Flip to Market Leader by Year-End
The biotech sector has been one of the market's laggards for several years now, and 2025 has been no different, at least on the surface. Year-to-date, the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB), which tracks the NASDAQ Biotechnology Index, is up just over 8%. The SPDR S&P Biotech ETF (NYSEARCA: XBI), which follows the S&P Biotechnology Select Industry Index, has gained only 6.2%.
Both are far behind the broader market benchmarks. But that simple snapshot doesn’t tell the whole story. Over the last month and quarter, the sector has shown signs of life, with momentum beginning to turn in its favor.
The S&P 500 has risen 9.36% so far, but the IBB has outpaced it with a 12.47% surge. For a sector that has spent much of the recent cycle stuck in the shadows, this fresh outperformance has investors asking the question: could biotech be setting up for a significant shift into year-end?
Why Rate Cuts Matter for Biotechs
The case for a biotech resurgence ties directly to interest rates. Recent comments from the FED and economic data strongly suggest a September rate cut is likely, with the possibility of more before year-end.
That shift could be pivotal, because biotech stocks are among the most rate-sensitive sectors in the market.
Like small-cap stocks, which also thrive in falling-rate environments, biotechs rely heavily on external funding to fuel growth. Early-stage biotech firms in particular face steep costs tied to research, clinical trials, and operational expenses.
Lower rates reduce borrowing costs, extend cash runways, and generally make funding more accessible. For investors, this not only lowers risk but also enhances the value of their capital over longer timelines.
Equally important, lower rates tend to improve sentiment and risk appetite across markets. For biotechs, a sector that demands patience and offers asymmetric payoffs when breakthroughs succeed, easier financial conditions can be the spark that accelerates momentum.
We’ve already seen hints of this in recent months. Alongside biotechs, small caps have also staged a resurgence, with the iShares Russell 2000 ETF (NYSEARCA: IWM) gaining 12.7% on the quarter, closely matching biotech’s run.
That alignment suggests a broader shift in investor positioning, one that favors more growth-sensitive and capital-intensive market areas.
Ways to Play the Potential Momentum Shift
The most straightforward approach for investors seeking exposure is through a diversified ETF like the iShares Nasdaq Biotechnology ETF.
The fund gives broad exposure to industry heavyweights such as Amgen, Regeneron, and Gilead Sciences. Importantly, IBB has technical levels that could prove decisive in the weeks ahead.
The $140 area has held significant support, and as long as that remains intact, the uptrend is alive. On the upside, $150 looms large as the key resistance.
A breakout above that level would mark a multi-year breakout for the sector and could confirm that the tide has truly turned in biotech’s favor.
Within the sector, Gilead Sciences (NASDAQ: GILD) deserves close attention. As the top holding in IBB, with a 7.49% weighting, its trajectory holds significant sway over the ETF and the broader group.
And unlike much of the sector, Gilead has been a clear leader in 2025.
Year-to-date, GILD is up nearly 28%, handily outpacing peers. The stock is consolidating in a bullish flag formation near 52-week highs, and a breakout above $120 could set up the next leg higher.
If Gilead continues to lead, it may benefit its shareholders and provide momentum for the entire sector.
From Laggard to Leader?
The biotech sector’s years of underperformance have tested investor patience, but recent developments suggest a shift may already be underway.
With rate cuts on the horizon, capital conditions easing, and technical momentum strengthening, the sector could be moving into a new chapter of leadership.
