The biotech sector has significantly lagged behind the overall market and its leading sector, technology, year-to-date. However, following the release of the CPI data on Thursday, the biotech sector, represented by the iShares Biotechnology ETF (NASDAQ: IBB), experienced a significant breakout above a multi-year resistance level. The sector closed the week up a whopping 6%, compared to the overall market's 0.96% gain. This relative strength and significant outperformance following the inflationary data could set the tone for the remainder of the year.

Let's take a closer look at what caused this move, the overall sector, and several biotech stocks that made significant moves along with their sector.

CPI Data Sparks Biotech Rally

Inflation saw a significant decline last month, as revealed by the June Consumer Price Index (CPI) data released on Thursday. This development has led experts to suggest that the Federal Reserve might reduce interest rates more than once before the end of the year. June marked the first time prices fell in nearly two years, with the headline CPI dropping 0.1% month-over-month, the first decrease in 23 months, according to the U.S. Bureau of Labor Statistics. Economists had anticipated a 0.1% increase compared to May. On a yearly basis, CPI increased by 3.0% in June, down from 3.4% the previous month, surpassing the forecasted 3.1% rise.

Additionally, Core CPI, which excludes food and energy costs, also showed a lower-than-expected rise, increasing by only 0.1% in June from the previous month, whereas predictions had been for a 0.2% increase.

Why Is This Good for Biotech Stocks?

A cooling inflation rate can lead to lower borrowing costs, as the Federal Reserve might cut interest rates to stimulate the economy. For biotech companies, which often rely heavily on capital to fund their research and development pipelines, lower borrowing costs mean cheaper access to capital. This financial flexibility allows these companies to pursue growth and advance their drug development projects aggressively. The anticipation of more accessible access to funding likely contributed to the sector's strong performance and risk-on approach following the CPI data.

Sector Overview and Notable Movers

After the CPI data, the sector ETF (IBB) saw a significant breakout above a multi-year resistance level, closing the week up 6%. This breakout marks a potential shift in momentum for the biotech sector, which has lagged behind other market sectors. The IBB's $140 resistance has held firm since 2022; however, its close last week above this major resistance has confirmed a significant momentum and trend shift. The sector has been stuck in its post-pandemic lull and high-interest rate environment for several years. However, that all appeared to shift last week following the CPI inflation data and break above a multi-year resistance level.

Several biotech stocks made notable moves alongside the sector.

Regeneron Pharmaceuticals (NASDAQ: REGN): The largest holding of the IBB sector ETF with an 8.3% weighting, Regeneron led the sector last week, up almost 6.4%. This brings its year-to-date performance to over 25% and keeps it trading at 52-week highs.

Amgen (NASDAQ: AMGN): The fourth-largest holding of IBB, with a 7.99% weighting, Amgen closed the week up an impressive 6.42%. On Friday, AMGN broke out of a three-month consolidation and hit a new 52-week high.

Legend Biotech Corp (NASDAQ: LEGN): It wasn't only large-cap healthcare and biotech giants that outperformed last week. Small to mid-cap biotechnology companies also experienced notable surges and volume inflows. For example, shares of $9.9 billion biotech company Legend Biotech surged over 17% on the week after experiencing a significant uptick in trading volume on Friday and breaking above a multi-month consolidation.