Q-dub Rate expectation. Away from risk, but strong drug profiles could still be rewarded

Research evidence excerpt

Q-dub Rate expectation. Away from risk, but strong drug profiles could still be rewarded

Biotechnology - Immunology

Genetic Medicines - Market Weight

Immunology - Market Overweight

Q-dub Rate expectation. Away from risk, but strong drug May 24, 2026

profiles could still be rewarded

The Wolfe Byte

A major reversal in the rate expectation may be causing a recalibration of positioning. Systematic exposures suggest

a move toward fundamentals and away from risky biotechs, but we still believe high-quality events can still be

rewarded.

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Market implying meaningful odds of a hike in 2026. Our macro analyst pushed back all expected rate cuts, and now

the base case is that the easing cycle will begin in 2H 2027. "Our bias is that rates likely continue repricing higher until

either growth weakens, equities begin to crack more materially, or Trump reaches his pain threshold and takes a deal

with Iran" (see Stephanie Roth report). We also point out a significant reversal in market implications from early May, as

the market is now implying 76.6% odds of a rate hike between now and Dec, with the first full hike priced in for March

2027 (previously implying 4.9% odds of a rate cut between now and Dec, see report).

Early signal coinciding with the welcoming of less risky assets amid the rate-hike reversal. L3M, gross margins &

sales/EV have been the top two negatives on the pre-rev basket, dragging down stock prices by roughly 3% each (most

of this occurred in the past month). Importantly, we believe we are also in the midst of a high-volatility unwind (see