Biotech companies are the driver of the U.S. economic growth

Nasdaq stock exchange

While the so-called FANG stocks plus Tesla and Microsoft have been the bells of the stock ball this year, powering up the Nasdaq’s nearly unbreakable run up 26% would be the biotech names playing an increasingly powerful role on the Nasdaq particularly during the pandemic.

592 biotechs and pharmaceutical names, including Pfizer’s and COVID vaccine power player partner BioNTech, trade on the Nasdaq. We could add Moderna and Gilead Sciences in there – they’re all very much at the forefront of the COVID race. Nasdaq’s performances levitated the stock of its parent company, which reported stellar earnings before the bell this morning.

Nasdaq CEO Adena Friedman told us about the state of affairs during the financial crisis and what will bring investors into the equities markets.

We have 592 biotech and pharma companies and the Nasdaq biotech index, which has almost $15 billion of assets under management tied to it. We continue to be the place where a lot of biotechs turn to in terms of supporting them as they’re looking for investors and managing their lives as a public company.

We’re really proud of our role in the U.S economy when it comes to the biotech industry. If you think about what is going to carry us through the pandemic and which companies are really going to drive the economy on the back of the pandemic, I think you end up leaning into technology companies that are geared towards consumers and making sure that they have the convenience.

And then obviously a global and diversified workforce is really where a lot of other large and successful technologies focus their energy. Of course, you have healthcare in the biotech industry, so all of those elements of the economy are powering us through this pandemic. Investors recognize that not only in terms of the current period of time but also in the world look like afterward.

That’s why investors are coming in and having confidence in those investments. There are three elements of what is bringing investors into the equities markets.

The first is this fiscal and monetary stimulus, and that it’s not over, because there will be more stimulus which is really creating a very low cost of capital and also creating liquidity in the markets.

Those two things combined give investors more confidence to come into the markets. Then we have the overall trends in terms of which sectors are driving the performance of the markets, and those are the newer economy sectors like tech and biotech.

So, we’re going to have a more technology-driven economy and a more remote and flexible economy. All of those companies that lean into that are doing quite well.

The third thing is, what are the alternatives? There’s a lot of money to put to work, there are a lot of investors with a lot of cash, and they are looking to make investments that will generate a return, and with the zero rate environment, you really do have a situation where the alternatives aren’t nearly as attractive. So they’re putting their risk capital into the equity market.

When you look at the FANGs and all those names plus Tesla and Microsoft – those companies are the ones that are growing, they’re generating enormous amounts of revenue and earnings. They’re driving the economy forward, and therefore they become a bigger weight.

That’s a natural part of things. If you think about what our economy looked like back in the 60s and 70s, they were really driven by oil companies. So, there are phases in the economy over periods of decades where you see way back in the day you had the railroads, and then you had capital intensive companies dominating the markets, and then you had the oil companies coming in and becoming dominant in the markets.

Now, you have technology that has become the dominant driver of economic growth, and that is the reason why they are sitting at the top.

Once companies realize there is a lot of capital to put to work, investors are looking to create opportunities for themselves in the markets, and the companies that came out during that period were biotech companies, technology companies. Ones that were leaning into the trends that people saw during the pandemics, so they were able to find those investors.

Also, in terms of the IPOs, we were a bit surprised by is how quickly the IPO market did recover on the back of the challenging days we saw in March.

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