Chart of the week: The biotech bubble

"We are not in a biotech bubble, period," insists David Seaburg of asset manager Cowen & Co. But it's getting harder to share his faith. In the past ten years, the Nasdaq Biotechnology index has risen almost sixfold; in the past five, it has quadrupled. It's reminiscent of the 1990s tech bubble.

Around 75% of firms in the index have no profits, and just five account for over 80% of the whole sector's earnings, says Fidelity's Tom Stevenson in The Sunday Telegraph. This is "fertile ground" for market bubbles.

"Take a plausible growth story, sprinkle with six years of emergency-level interest rates and don't be surprised when strange things happen." Valuations certainly look stretched the index is on an eye-watering price/earnings (p/e) ratio of 425, and a 2016 p/e of 34. Stevenson warns that rallies driven by momentum rather than fundamentals are vulnerable to sudden and nasty collapses.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up