Can Biotech Heal Itself?
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As part of the broader healthcare umbrella, the biotech sector has spent the last couple of years trading without a clear directional trend. The sector rife with innovation has yet to exceed its all-time high from 2021, while the rest of the stock market soars to new highs. Does this present an opportunity for bulls to capitalize upon, or is it warning of further downside woes in the sector?
Can R&D Reignite the Bull?
There’s been tremendous medical advancements over the past few years in areas ranging from cancer research, vaccines, and even weight loss drugs. This has led to windfall profits for select companies in the biotech and pharmaceutical industry, but it hasn’t quite translated to widespread sector participation.
If innovations continue to take place in the biotech space, it could translate to tremendous revenue and earnings growth, and lead to a renewed bull trend.
In this situation, Direxion’s Daily S&P Biotech Bull 3X Shares (Ticker: LABU), which seeks daily investment results, before fees and expenses, of 300% of the performance of the S&P Biotechnology Index* could see a notable resurgence.
Some of the fund’s top holdings include Exact Sciences (Ticker: EXAS), Viking Therapeutics (Ticker: VKTX), and Sarepta Therapeutics (Ticker: SRPT). The next earnings report for EXAS is on July 30. For VKTX, the next report is on July 24, and for SRPT, the next report is on August 7. If any of these companies beat expectations or issue strong guidance, it could be a bullish catalyst for LABU.
To view the Fund's full holdings, click here. Holdings are subject to risk and change.
Below is a daily chart of LABU as of June 27, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
The blue lines represent an uptrend and/or downtrend. An uptrend describes the price movement of a financial asset when the overall direction is upward. A downtrend describes the price movement of a financial asset when the overall direction is downward.
Could Macro Headwinds Remain an Issue for Biotech?
One of the biggest headwinds for the biotech sector has been the overall macroeconomic environment. Keep in mind this is a sector that typically has high levels of debt and weak cash flows, which can be difficult in a rising rate environment.
The Fed has been jawboning about interest rate cuts for the past several months, but if inflation* pressures start to reignite, it could delay the rate cuts. Moreover, if the labor market remains strong, it could postpone rate cuts as it would signal that the economy is handling higher rates well.
If such an environment, Direxion’s Daily S&P Biotech Bear 3X Shares (Ticker: LABD), which seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the S&P Biotechnology Select Industry Index could see a bid.
Below is a daily chart of LABD as of June 27, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
The slanted blue line represents a downtrend. A downtrend describes the price movement of a financial asset when the overall direction is downward.
More Healthcare and Tech Plays
Traders looking additional leveraged, concentrated bets related to healthcare may find a position in Direxion’s Daily Healthcare Bull 3X Shares (Ticker: CURE) or the Daily Pharmaceutical & Medical Bull 3X Shares (Ticker: PILL). CURE seeks daily investment results, before fees and expenses, of 300% of the performance of the Healthcare Select Sector Index, while PILL seeks daily investment results, before fees and expenses, of 300% of the performance of the S&P Pharmaceuticals Select Industry Index.
Those looking to play the tech sector may consider Direxion’s Daily Technology Bull 3X Shares (Ticker: TECL) or the Daily Technology Bear 3X Shares (Ticker: TECS), which seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the Technology Select Sector Index*.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The "S&P Biotechnology Select Industry Index" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been licensed for use by Rafferty Asset Management, LLC ("Rafferty"). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Biotechnology Select Industry Index.
The S&P Biotechnology Select Industry Index (SPSIBITR) is provided by S&P Dow Jones Indices LLC and includes domestic companies from the biotechnology industry. The Index is a modified equal-weighted index that is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards (GICS).
The Health Care Select Sector Index (IXVTR) is provided by S&P Dow Jones Indices LLC and includes domestic companies from the healthcare sector, which includes the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology.
The S&P Pharmaceuticals Select Industry Index (SPSIPHTR) is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) pharmaceuticals sub-industry.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
One cannot directly invest in an index.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. The Funds are non-diversified and include risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Passive Investment and Index Performance Risk, and risks specific to the securities of the Biotechnology Industry and Healthcare Sector. Companies within the biotech industry invest heavily in research and development, which may not lead to commercially successful products. Additional risks include, for the Direxion Daily S&P Biotech Bull 3X Shares, Daily Index Correlation Risk, and for the Direxion Daily S&P Biotech Bear 3X Shares, Shorting or Inverse Risk and Daily Inverse Index Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
Distributor: Foreside Fund Services, LLC.