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The canary in the gold mine for listed companies in 2024.

Is the market turning? What will 2024 look like?

We are back!

Well, some of us are back, and some of you are not back yet. Such is the market that the early weeks of January are usually slow.

But there is something a bit different about 2024. 

There is a sense of… dare I say it… optimism?

Let’s discuss.

So as we left off last year, I made some promises for this content. 

  1. It’s going to be about listed life only (I’ll keep my personal musings to my LinkedIn feed…)
  2. We’ll continue to bring benchmarks, insights and learnings from the broader client base.
  3. I’ll try and make sure there’s a learning or action item from each email. 

To add a 4th point to this, we’re going to keep the rhythm of the emails weekly but also note that some weeks, due to time or just bad writing, the content may not be up to scratch.

As such, every now and then you might not get an email on Saturday mornings. 

If you want to help me with this, feel free to send in ideas to cover or questions you have. Letting me know what’s useful to you will help me create better content.

So heading back in, something happened at the end of 2023 that’s worth keeping an eye on.

Biotech, as a sector, massively outperformed the market.

And not just a little bit - in December, ASX Biotechs increased by 12.5% in a month. That is a big movement. 

Why is this important?

Well, Biotech is a bit like a canary in the coal mine. It’s a small (sub 100 companies), but high risk sector that helps identify when investors are interested in investing in risk/upside.

Unlike other sectors, it’s somewhat immune to valuation models or commodity swings - you don’t see the price of cancer drugs swinging wildly in the market. And whilst the market wide movements hit it, and individual companies can outperform - when the entire sector moves en masse, it makes you sit up and take notice.

It wasn't felt everywhere but you can see the breakdown here.

Looking at the data, the only segment to move backwards was the sub $10m one - the bottom 20% of stocks by market cap. With their super low liquidity ($6k average per day) these are harder to look at for validation. But this might show that whilst investors may be coming on risk, it isn’t happening all the way down, yet.

This is the Ripple Effect. I am sure it is called something else too, but I discovered it when I was 20 and working as an Accountant at KPMG. I wanted to start buying property but didn’t have enough cash yet, so I “shadow bought”. I researched areas, looking at movements in prices and I found that there are certain areas that move before others. This isn’t groundbreaking, but if you watch it long enough (this was a weekly habit for 2 years) you can see the movements. (I ended up using this to score a great deal on my first place in 2008, flipping it a year later for a 30% profit).

The data above could be showing us something similar.

Over the last year CSL has increased its market cap by over $20bn.

The groupings below are all showing similar signs, with the bottom two the weakest.

It will be interesting to watch this over the next few months to see if it plays out.

Here’s the learning. 

Ok - so let’s say this is true, and there are signs of the market moving.

What does that mean?

Well… shit, I mean it has been a minute since we had a good market. Really going back to the start of 2022. It has been nearly 2 years since things fell away.

So - here is my suggestion for the week.

You already know who your listed peers are, but who are the canaries in the coal mine for you? Which 5-10 stocks are going to be bellwethers for you? This effect usually works in a descending fashion - bigger stocks will move first in an upswing. So try to think of stocks bigger than you. Ones you reference to think about when looking at the future.

Have a think and then:

  • Log into your trading or tracking app
  • Create a new watchlist - call it Upwards Ripple
  • Add the companies there, you need at least 5 but avoid the massive ASX50 stocks.
  • Then track this over the coming weeks and months.

Use this as a guide as to how your sector is moving and as a potential indicator that things are looking up!

So - what do you think? Can you see the market moving up this year, going on risk? Or do you see a repeat of 2023?

Either way - be watchful.

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