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Wall Street was downbeat last week with all notable U.S. indexes – including the S&P 500 (down 1.94%), the Dow Jones (down 1.68%), the Nasdaq Composite (down 2.95%), and the Russell 2000 (down 1.71%) – recording a slump. Rising inflation, hawkish Fed and fast-spreading Omicron variant of COVID-19 led to this bloodbath.
Wholesale prices in the United States gained 9.6% in November from a year ago, marking the highest level since November 2010. The pace beat economists’ estimate of 9.2%. Wholesale prices increased at their fastest pace on record in November (read: Best Index ETFs to Play the Surge in Inflation).
The core producer price index increased at a 6.9% clip; a bit slower than estimates but still the fastest ever on record, dating to August 2014. The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%, according to FactSet.
Fed Speeds Up QE Tapering
No wonder, the Fed has paced up QE tapering to contain sky-high inflation. Fed Chairman Jerome Powell said in his post FOMC statement that the central bank will raise the tapering of the monthly bond-buy program. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November.
At Least One Fed Rate Hike Sure-Shot in 2022; Max Three Possible
The meeting projections revealed that 12 out of 18 FOMC members expect at least three rate increases next year. This marks an increase from September’s forecast, where half of the Fed members saw at least one hike in 2022. All 18 policymakers have also indicated the possibility of at least one rate hike before 2022 end. Interest rates, which have been low since March 2020, might climb to 2.1% by 2024 end (read: Warm Up Your Portfolio With These ETFs This Winter).
Omicron Spreads Fast
President Joe Biden warned on Dec 16 that the Omicron variant of the coronavirus will start to spread much more rapidly in the United States. The Covid-19 infection rate has doubled in New York City as the Omicron cases surge ahead of Christmas and New year holidays.
Against this backdrop, below we highlight a few inverse/leveraged ETFs that topped the chart last week.
ETFs in Focus
Inverse China
Chinese stocks have been under pressure for long due to fears over the regulatory scrutiny. Property market bubble over there has been another concern. The latest addition in the series of threats was U.S.-China diplomatic tension. Shares of Chinese companies listed in the U.S. plunged last week to the lowest since March 2020 on concerns Washington will hit more companies with investment and export sanctions, per Bloomberg. FTSE China Bear 3X Direxion (YANG - Free Report) advanced 17.6% last week.
Inverse Energy
Omicron fears have hurt the demand scenario of the energy sector. S&P Oil & Gas Expl Bear 3X Direxion (DRIP - Free Report) , Microsectors Oil & Gas Exp. & Prod. -3X Inverse (OILD) and Microsectors -3X U.S. Big Oil Index ETN (NRGD) added about 16.9%, 16.4% and 15.4%, respectively, last week.
Leveraged Biotech
As long as the virus threat is around, extra focus on healthcare and biotech stocks is warranted and thus the segment gained. Demand for vaccines, boosters and therapies will remain high in the coming days. U.S. healthcare spending increased by 9.7% (biggest in about two decades) in 2020 to touch $4.1 trillion mainly due to the impacts of the COVID-19 pandemic. As a result of the steep increase, healthcare’s share of gross domestic product recorded a considerable increase from 17.6% in 2019 to 19.7% (largest on record) in 2020. S&P Biotech Bull 3X Direxion (LABU - Free Report) gained about 14.8% last week.
Inverse FANG
FANG stocks are generally high-growth in nature. As the Fed has turned hawkish by speeding up the QE tapering, rising rate worries took markets in its grip. This went against the FANG stocks. Microsectors Fang+ -3X ETN (FNGD - Free Report) was up 13.7% last week.
Inverse High Beta
High-beta stocks had no reason to outperform last week due to the broad-based risk-off sentiments. As a result, inverse leveraged high-beta ETF – S&P 500 High Beta Bear 3X Direxion (HIBS - Free Report) – has advanced about 11.3% past week.
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5 Best Inverse/Leveraged ETF Areas of Last Week
Wall Street was downbeat last week with all notable U.S. indexes – including the S&P 500 (down 1.94%), the Dow Jones (down 1.68%), the Nasdaq Composite (down 2.95%), and the Russell 2000 (down 1.71%) – recording a slump. Rising inflation, hawkish Fed and fast-spreading Omicron variant of COVID-19 led to this bloodbath.
Wholesale prices in the United States gained 9.6% in November from a year ago, marking the highest level since November 2010. The pace beat economists’ estimate of 9.2%. Wholesale prices increased at their fastest pace on record in November (read: Best Index ETFs to Play the Surge in Inflation).
The core producer price index increased at a 6.9% clip; a bit slower than estimates but still the fastest ever on record, dating to August 2014. The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%, according to FactSet.
Fed Speeds Up QE Tapering
No wonder, the Fed has paced up QE tapering to contain sky-high inflation. Fed Chairman Jerome Powell said in his post FOMC statement that the central bank will raise the tapering of the monthly bond-buy program. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November.
At Least One Fed Rate Hike Sure-Shot in 2022; Max Three Possible
The meeting projections revealed that 12 out of 18 FOMC members expect at least three rate increases next year. This marks an increase from September’s forecast, where half of the Fed members saw at least one hike in 2022. All 18 policymakers have also indicated the possibility of at least one rate hike before 2022 end. Interest rates, which have been low since March 2020, might climb to 2.1% by 2024 end (read: Warm Up Your Portfolio With These ETFs This Winter).
Omicron Spreads Fast
President Joe Biden warned on Dec 16 that the Omicron variant of the coronavirus will start to spread much more rapidly in the United States. The Covid-19 infection rate has doubled in New York City as the Omicron cases surge ahead of Christmas and New year holidays.
Against this backdrop, below we highlight a few inverse/leveraged ETFs that topped the chart last week.
ETFs in Focus
Inverse China
Chinese stocks have been under pressure for long due to fears over the regulatory scrutiny. Property market bubble over there has been another concern. The latest addition in the series of threats was U.S.-China diplomatic tension. Shares of Chinese companies listed in the U.S. plunged last week to the lowest since March 2020 on concerns Washington will hit more companies with investment and export sanctions, per Bloomberg. FTSE China Bear 3X Direxion (YANG - Free Report) advanced 17.6% last week.
Inverse Energy
Omicron fears have hurt the demand scenario of the energy sector. S&P Oil & Gas Expl Bear 3X Direxion (DRIP - Free Report) , Microsectors Oil & Gas Exp. & Prod. -3X Inverse (OILD) and Microsectors -3X U.S. Big Oil Index ETN (NRGD) added about 16.9%, 16.4% and 15.4%, respectively, last week.
Leveraged Biotech
As long as the virus threat is around, extra focus on healthcare and biotech stocks is warranted and thus the segment gained. Demand for vaccines, boosters and therapies will remain high in the coming days. U.S. healthcare spending increased by 9.7% (biggest in about two decades) in 2020 to touch $4.1 trillion mainly due to the impacts of the COVID-19 pandemic. As a result of the steep increase, healthcare’s share of gross domestic product recorded a considerable increase from 17.6% in 2019 to 19.7% (largest on record) in 2020. S&P Biotech Bull 3X Direxion (LABU - Free Report) gained about 14.8% last week.
Inverse FANG
FANG stocks are generally high-growth in nature. As the Fed has turned hawkish by speeding up the QE tapering, rising rate worries took markets in its grip. This went against the FANG stocks. Microsectors Fang+ -3X ETN (FNGD - Free Report) was up 13.7% last week.
Inverse High Beta
High-beta stocks had no reason to outperform last week due to the broad-based risk-off sentiments. As a result, inverse leveraged high-beta ETF – S&P 500 High Beta Bear 3X Direxion (HIBS - Free Report) – has advanced about 11.3% past week.