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After two disastrous weeks, Wall Street was moderately upbeat last week. The S&P 500 (up 0.51%), the Dow Jones (up 0.62%) and the Nasdaq Composite (up 0.02%) and the Russell 2000 (up 0.50%) – all were in the green (read: S&P 500 ETF's Best Day Since July: 6 Winning Stocks).
Key indexes shook off their earlier weakness on Evergrande news and ended the week on a positive note. China real estate developer Evergrande agreed to settle interest payments on a domestic bond, while the Chinese central bank injected cash into the banking system, to eradicate global market fears of contagion from the debt-laden property developer and its default risks. Evergrande fears shook the markets lately on a potential of the Lehman-like crisis.
However, equity investors finally brushed aside uncertainty over monetary and fiscal policy and ongoing debates in Washington over the debt ceiling. The buy-the-dip strategy also helped boost equities. Cyclical sectors outperformed as the Federal Reserve stressed on the economic progress.
The Fed has also given cues of an imminent QE taper. "It’s not a surprise to me that the Fed is moving forward with the tapering," Jeff Schulze, ClearBridge chief investment strategist, told Yahoo Finance. "If you think about the three-month moving average ... we're at about 740,000 jobs created per month. That is stronger than anything we've ever seen pre-COVID,” as quoted on Yahoo Finance.
This is why bond yields jumped from 1.31% (on Sep 20) to 1.47% (on Sep 24) on Fed tightening cues. Stocks also gained on hopes of sustained economic recovery. Investors chose to invest in the corporate strength. On an even more positive note, the net worth of American households reached a fresh all-time high in the second quarter of 2021 supported by a faster-than-expected recovery of the U.S. economy from the pandemic-led devastations. On Sep 23, Fed reported that household net worth surged $5.85 trillion or 4.3% in second-quarter 2021 from the first quarter to reach $141.7 trillion.
Against this backdrop, below we highlight a few inverse/leveraged ETFs that stood out last week.
ETFs in Focus
Microsectors U.S. Big Oil Index 3X ETN (NRGU - Free Report) – Up 13.63%
As oil prices rallied, leveraged energy ETFs gained last week. The fund follows the equal-dollar weighted Solactive MicroSectors U.S. Big Oil Index that provides exposure to the 10 largest U.S. energy and oil companies. Falling crude inventories, supply disruption in the Gulf of Mexico after two hurricanes and growing fuel demand are driving the oil price higher. Notably, U.S. crude stocks fell to the lowest level since October 2018.
FTSE China Bear 3X Direxion (YANG - Free Report) – Up 11.72%
The fund follows the FTSE China 50 Index, which consists of the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange.
Chinese equities have been under pressure for quite some time. The China government’s crackdown on various sectors, especially technology, has weighed on it. Last to last week witnessed China’s property market bubble. Investors received a news that China Evergrande Group, the largest property company in the world in 2018, is on the brink of default. No wonder, Chinese stocks will crash and inverse ETF will win.
The underlying BlueStar Travel and Vacation Index is comprised of US listed stocks, including depository receipts, of companies that are Travel and Vacation companies. With growing vaccination, talks of booster shots, easing restrictions on air travel and higher vacation demand in the upcoming holiday season, this fund has every reason to fly higher (read: Travel & Tourism ETFs to Gain on Easing U.S. Travel Restriction).
As the Fed indicated to make the announcement of a QR taper in November, interest rates started climbing higher, making the yield curve steepened. This is a great scenario for banking stocks as banks get to enjoy higher interest rate margin (read: Sector ETFs to Benefit/Lose as Oil Crosses $70).
The MicroSectors Gold Miners -3X Inverse Leveraged ETNs is linked to a three times inverse leveraged participation in the performance of the S-Network MicroSectors Gold Miners Index. Gold prices have also been a victim of Fed’s taper talks and the resultant rise in the greenback.
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5 Best Inverse/Leveraged ETFs of Last Week
After two disastrous weeks, Wall Street was moderately upbeat last week. The S&P 500 (up 0.51%), the Dow Jones (up 0.62%) and the Nasdaq Composite (up 0.02%) and the Russell 2000 (up 0.50%) – all were in the green (read: S&P 500 ETF's Best Day Since July: 6 Winning Stocks).
Key indexes shook off their earlier weakness on Evergrande news and ended the week on a positive note. China real estate developer Evergrande agreed to settle interest payments on a domestic bond, while the Chinese central bank injected cash into the banking system, to eradicate global market fears of contagion from the debt-laden property developer and its default risks. Evergrande fears shook the markets lately on a potential of the Lehman-like crisis.
However, equity investors finally brushed aside uncertainty over monetary and fiscal policy and ongoing debates in Washington over the debt ceiling. The buy-the-dip strategy also helped boost equities. Cyclical sectors outperformed as the Federal Reserve stressed on the economic progress.
The Fed has also given cues of an imminent QE taper. "It’s not a surprise to me that the Fed is moving forward with the tapering," Jeff Schulze, ClearBridge chief investment strategist, told Yahoo Finance. "If you think about the three-month moving average ... we're at about 740,000 jobs created per month. That is stronger than anything we've ever seen pre-COVID,” as quoted on Yahoo Finance.
This is why bond yields jumped from 1.31% (on Sep 20) to 1.47% (on Sep 24) on Fed tightening cues. Stocks also gained on hopes of sustained economic recovery. Investors chose to invest in the corporate strength. On an even more positive note, the net worth of American households reached a fresh all-time high in the second quarter of 2021 supported by a faster-than-expected recovery of the U.S. economy from the pandemic-led devastations. On Sep 23, Fed reported that household net worth surged $5.85 trillion or 4.3% in second-quarter 2021 from the first quarter to reach $141.7 trillion.
Against this backdrop, below we highlight a few inverse/leveraged ETFs that stood out last week.
ETFs in Focus
Microsectors U.S. Big Oil Index 3X ETN (NRGU - Free Report) – Up 13.63%
As oil prices rallied, leveraged energy ETFs gained last week. The fund follows the equal-dollar weighted Solactive MicroSectors U.S. Big Oil Index that provides exposure to the 10 largest U.S. energy and oil companies. Falling crude inventories, supply disruption in the Gulf of Mexico after two hurricanes and growing fuel demand are driving the oil price higher. Notably, U.S. crude stocks fell to the lowest level since October 2018.
FTSE China Bear 3X Direxion (YANG - Free Report) – Up 11.72%
The fund follows the FTSE China 50 Index, which consists of the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange.
Chinese equities have been under pressure for quite some time. The China government’s crackdown on various sectors, especially technology, has weighed on it. Last to last week witnessed China’s property market bubble. Investors received a news that China Evergrande Group, the largest property company in the world in 2018, is on the brink of default. No wonder, Chinese stocks will crash and inverse ETF will win.
Direxion Travel & Vacation Bull 2X ETF (OOTO - Free Report) – Up 10.67%
The underlying BlueStar Travel and Vacation Index is comprised of US listed stocks, including depository receipts, of companies that are Travel and Vacation companies. With growing vaccination, talks of booster shots, easing restrictions on air travel and higher vacation demand in the upcoming holiday season, this fund has every reason to fly higher (read: Travel & Tourism ETFs to Gain on Easing U.S. Travel Restriction).
Regional Banks Bull 3X Direxion (DPST - Free Report) – Up 10.53%
As the Fed indicated to make the announcement of a QR taper in November, interest rates started climbing higher, making the yield curve steepened. This is a great scenario for banking stocks as banks get to enjoy higher interest rate margin (read: Sector ETFs to Benefit/Lose as Oil Crosses $70).
Microsectors Gold Miners -3X ETN (GDXD - Free Report) – Up 10.02%
The MicroSectors Gold Miners -3X Inverse Leveraged ETNs is linked to a three times inverse leveraged participation in the performance of the S-Network MicroSectors Gold Miners Index. Gold prices have also been a victim of Fed’s taper talks and the resultant rise in the greenback.