Since the end of October 2023, the S&P 500 Biotechnology Select Industry Index jumped over 30%. It could maintain its upward trajectory given the early IPO activity in 2024 thus far. If that trend persists, traders may want to keep an eye on biotech ETFs.
Despite the overall market trending higher in 2023, biotech wasn’t a beneficiary of the rally. According to STAT in September 2023, just a month prior to its latest rally, investors soured on the biotech industry. But it noted that it can be prone to boom and bust cycles. However, 2024 is shaping up to be a comeback year if early IPO activity is a harbinger of things to come.
“As we all know, 2023 was a horrible year for initial public offerings in biotech,” BioSpace reported. “However, the IPO market seems to have come alive in early 2024 with five companies jumping into the fray—Alto Neuroscience, ArriVent Biopharma, CG Oncology, Kyverna Therapeutics and Metagenomi.”
For the biotech industry to thrive, constant innovation is a necessity and that requires investor capital. As such, an early influx of capital to help fund IPOs is exactly what the industry was hoping for to begin 2024. PricewaterhouseCoopers (PwC) was already forecasting the move before the start of the year.
“IPOs are the lifeblood of the industry, providing companies with critical capital to further develop their technologies and therapies,” BioSpace added. “The apparent rush of public offerings, at least compared to last year’s lull, has been a nice surprise just two weeks into the new year—though, to their credit, analysts at PwC last month predicted a potential rebound in IPO volumes starting in 2024.”
Leverage the Biotech Industry
To maximize profit, traders can use the Direxion Daily S&P Biotech Bull 3x Shares (LABU), which seeks daily investment results equal to 300% of the daily performance of the S&P Biotechnology Select Industry Index. With the capital markets widely expecting the U.S. Federal Reserve to cut interest rates this year, it could potentially fuel more IPO and mergers and acquisitions activity, especially if reduced borrowing costs come at a quicker pace than anticipated.
Conversely, if traders start to get bearish vibes in biotech again, they can take the opposite direction. As such, there’s the Direxion Daily S&P Biotech Bear 3X Shares (LABD) available to get strategic exposure, such as hedging a separate position or as a sole position when conviction is high.
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