The first week of 2022 turned somber for Wall Street as the S&P 500 lost 1.9%, the Dow Jones skidded 0.3%, the Nasdaq Composite lost 4.5% and the Russell 2000 was off 2.9%. Notably, the Nasdaq closed out the
worst week since February 2021 as rising rate worries took the markets in its grip. Also, soft jobs data played foul in Wall Street.
The latest Fed minutes came across as pretty hawkish and revealed policymakers’ concern about worsening inflation. The members said that the jobs market is nearing full employment. The probabilities of a March interest rate hike of 0.25% surged to 72%, according to fed futures trading contracts. If enacted, this will mark the Fed’s first rate hike in three years to counter inflation.
The U.S. central bank has already paced up QE tapering. 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. Plus, the bank upped its economic growth projections, raised its inflation outlook and cut unemployment rate projections (read:
ETFs to Win or Lose on Hawkish Fed Minutes).
If this was not enough, the U.S. economy added only 199,000 jobs in December 2021, well below market forecasts of 400,000. Nonfarm employment has increased by 18.8 million since April 2020 but is still down by 2.3% from its pre-pandemic level in February 2020.
Against this backdrop, below we highlight a few inverse/leveraged ETF areas that gained the most last week.
The energy sector remains the outperformer to start the New Year as oil prices gained momentum on supply disruptions. Global benchmark Brent crude jumped on Jan 7, 2021 to $80 a barrel, its highest since November, as OPEC+ agreed to stick to its planned increase for February instead of further raising it. Fears that the Omicron coronavirus variant could weigh on demand led the OPEC to go for such a decision.
Plus, the escalating unrest in Kazakhstan flared up supply concerns. Kazakhstan is currently producing 1.6 million barrels of oil per day. The supply outages in Libya have added to the chaos. All these factors boosted oil prices last week and favored the following ETFs/ETNs.
Microsectors U.S. Big Oil Index 3X ETN ( NRGU Quick Quote NRGU - Free Report) – Up 36.7% Microsectors Oil & Gas Exp. & Prod. 3X Leveraged ( OILU Quick Quote OILU - Free Report) – Up 33.7% Ultra Oil & Gas ETF (DIG) – Up 20.6% Energy Bull 2X Direxion (ERX) – Up 21.8% Leveraged Banks
The benchmark U.S. treasury yield was 1.76% on Jan 7, 2022 versus 1.63% yield at the start of the year due to a hawkish Fed. Banks are beneficiaries of rising rates. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve earns more on lending and pays less on deposits, thereby leading to a wider spread. This expands net margins and increases banks’ profits (read:
7 ETF Predictions for 2022). Regional Banks Bull 3X Direxion ( DPST Quick Quote DPST - Free Report) – Up 28.6% Inverse/Leveraged Biotech
Biotech stocks are high-growth in nature. Rising interest rates weigh on stock multiples, especially for growth stocks. This led to a crash in biotech stocks and ETFs and the below-mentioned inverse/leveraged ETF won.
S&P Biotech Bear 3X Direxion ( LABD Quick Quote LABD - Free Report) – Up 24.2% Inverse/Leveraged Technology
The tech-heavy Nasdaq posted its biggest daily drop since February after the hawkish Fed minutes on Jan 5. Since the index is high-growth in nature, it tends to underperform in a rising rate environment. No wonder, Internet and cloud stocks took a beating in the first week of 2022.
DJ Internet Bear 3X Direxion ( WEBS Quick Quote WEBS - Free Report) – Up 21.4% Direxion Daily Cloud Computing Bear 2X Shares ( CLDS Quick Quote CLDS - Free Report) – Up 20% Inverse/Leveraged Gold Miners
Gold prices slumped on prospects of rising greenback thanks to a hawkish Fed. Plus, high oil prices are a negative for miners. Mining companies’ 50% production costs are closely linked to energy prices. Pricey oil should spell trouble for gold miners’ operating margins.
Microsectors Gold Miners -3X ETN ( GDXD Quick Quote GDXD - Free Report) – Up 19.9%