The US Federal Reserve did not raise interest rates on September 21—and the life science sector, like other markets, has reacted favorably. There were widespread gains following the Fed’s announcement that interest rates would hold steady at between 0.25 to 0.5 percent.
The US Federal Reserve did not raise interest rates on September 21—and the life science sector, like other markets, has reacted favorably.
There were widespread gains following the Fed’s announcement that interest rates would hold steady at between 0.25 to 0.5 percent. The NYSE Health Care Index climbed about 0.7 percent at the close of September 22.
Meanwhile, shares in S&P 500 healthcare companies saw a collective 0.8 percent increase.
The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), which turned negative just prior to the Fed’s announcement, gained 0.62 percent.
Top performers included PharMerica (NYSE:PMC), up by 5.62 percent; Amgen (NASDAQ:AMGN), climbing 1.02 percent; and Advanced Accelerator Applications (NASDAQ:AAAP), which closed 1.2 percent higher on September 22.
Interest rates have remained unchanged since December 2015, when they were hiked for the first time in nearly a decade. And while they are now guaranteed to remain at the current rate for another month, many predict another increase is coming.
The Fed next meets in November, where there will again be an opportunity to raise interest rates—in fact, many analysts say such a move is certain. 14 of the 17 policy makers on the Federal Open Market Committee expect to see at least one hike before the end of 2016.
What does that mean for life science investors?
Some have said that a hike will protect the stock market in the long term. As The Guardian reported, low interest rates became a campaign issue several months ago, with people like Bernie Sanders or Donald Trump warning that they were creating unsustainable growth in the stock market—and that the bubble could burst any day.
And although we tend to associate rate hikes with falling stocks, that isn’t always the case: the last time the Fed raised interest rates, the market actually reacted positively and the healthcare sector saw a bit of a boost. In May 2000, an increase led to similar results: CNN reported that both the S&P 500 and NASDAQ were up by 15 percent.
In part, that’s because the increase was anticipated by the markets. And though there’s no guarantee with stocks, investors may take heart from the fact that this time around, the rate hike seems similarly expected.
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Securities Disclosure: I, Chelsea Pratt, hold no direct investment interest in any company mentioned in this article.