Stocks sold off on Thursday — except for the one sector people are calling a bubble

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(Bloomberg)The iShares Nasdaq Biotechnology ETF over 12 monthsStocks sold off on Thursday after a post-Fed rally on Wednesday.

But the Nasdaq still gained ground thanks to the biotech sector which gained about 2% on Thursday.

In fact, biotech stocks have been on fire all year. They're up about 15% year-to-date.

Last month, Max Nisen at Quartz wrote that while everyone is focusing on massive tech valuations, the biotech industry is where things are getting really bubbly.

Nisen wrote: "Big pharma firms and investors have been showering billions on speculative companies that have never produced a viable drug. For four years running, biotech stocks have risen faster than any other sector of the market in the United States."

And in testimony to Congress last year, Federal Reserve chair Janet Yellen warned about stretched stock valuations, saying:

"Valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year."

Biotech stocks have rallied by more than 50% since Yellen said that.

In Oppenheimer's latest weekly market strategy note, John Stoltzfus wrote that on a road trip visiting financial advisors across America last week, one of the most-asked questions was whether the biotech rally is over-extended.

Stoltzfus is in on this rally:

"Health Care is the only defensive sector that we really like. The baby boomer demographic, advancements in biotech, M&A activity, global health care mandates and increasing demand for ethical pharmaceuticals from the emerging and frontier markets are among the trends that cause us to rank the sector among our favorites."

But he notes that the sector can also be incredibly volatile:

"Last year the market signaled when Biotech had become overvalued and the group sold off. Dramatic developments in the sector along with M&A activity and a degree of animal spirits which from time to time flow through the category require investors to acknowledge the built-in risk along with the opportunities."

The sector is on fire, and nobody is quite sure when it will hit the top.

$IBB $XBI What inning are we in with biotech? Impossible to say but it probably feels like the bottom of the 19th if you're not involved.

— Irrelevant Investor (@michaelbatnick) March 19, 2015

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