Wall Street remained downbeat last week with the S&P 500 (down 3.3%), the Dow Jones (down 2.5%), the Nasdaq Composite (down 3.9%) and the Russell 2000 (down 4%) seeing massive loses. This happened on the likelihood of faster monetary policy tightening by the Federal Reserve.
St. Louis Fed President James Bullard recently said that he seeks rising rates by 3% to 3.25% in the second half of 2022, while Chicago Fed President Charles Evans and his Atlanta counterpart Raphael Bostic said they favor raising rates to neutral. As a result, bond yields rose. The benchmark U.S. treasury yield jumped to 2.89% on Apr 29, 2022 from 2.81% recorded at the start of the week.
Moreover, Fed Chairman Jerome Powell said lately that the central bank is committed to raising rates “expeditiously” to tame inflation. Investors took the statement as an interest rate hike of 50 basis points in May as inflation is at a 40-year high. “It’s absolutely essential to restore price stability,” Powell added, per a CNBC article.
Meanwhile, the American economy shrank an annualized 1.4% sequentially in Q1 of 2022, well below market forecasts of a 1.1% expansion and following a 6.9% expansion in Q4 of 2021, owing a record trade deficit and a fall in inventory investment. Rising Omicron infections to start the year weighed on activity across the board, while 40-year high inflation and the Russian invasion of Ukraine also contributed to the economic crisis.
An 8.5% decline in defense spending was a particular drag, chopping one-third of a percentage point off the final GDP reading. Consumer spending, which is the key part of the GDP scorecard, rose 2.7%, but that came amid a 7.8% increase in prices. Fixed investment (7.3% vs 2.7%), particularly nonresidential, also contributed positively to GDP.
Against this backdrop, below we highlight a few winning inverse/leveraged ETFs of last week.
ETFs in Focus CSI China Internet Index Bull 2X Direxion ( CWEB Quick Quote CWEB - Free Report) – Up 25.2%
China's Politburo indicated support for the tech sector and reduction of crackdown. This sent the beaten-down Chinese tech stocks rallying last week with tech giants Alibaba and JD.com as well as ride-hail platform DiDi jumping massively.
The underlying CSI Overseas China Internet Index includes securities primarily listed outside China, have been listed for at least three months and meet one of the three following criteria: the company is incorporated in mainland China; the operation center for the company is in mainland China; or at least 50% of the revenue from the company is from mainland China.
S&P Biotech Bear 3X Direxion ( LABD Quick Quote LABD - Free Report) – Up 23.4%
Biotech stocks on the Russell 2000 witnessed their worst April since at least 1997,
when Bloomberg started tracking returns. Rising rate worries have weighed on the growth sectors like biotech.
The sector has slumped roughly 65% from its February 2021 peak, sinking 22% in April alone. Regulatory concerns and the market’s inclination toward safer bets were other factors for the most awful April on record for biotech stocks. Some even believe that it resembles the 2000 tech crash, with more perils in the offing.
The underlying S&P Biotechnology Select Industry Index is designed to measure the performance of a sub-industry or group of sub-industries determined based on the Global Industry Classification Standards (GICS).
Ultra Bloomberg Natural Gas ETF ( BOIL Quick Quote BOIL - Free Report) – Up 20.9%
Natural gas futures spiked to a fresh 13-year high on tight supply conditions, adverse weather conditions and declining inventories. The jump in prices came as the conflict between Russia and Ukraine sparked fears of global supply disruption in an already tight-supply market. Western countries have slapped severe sanctions against Russia over Ukraine, disrupting trade flows. Sanctions by the United States and other countries will force Russia to supply less natural gas, thereby pushing prices higher.
The Bloomberg Natural Gas Subindex is intended to reflect the natural gas segment of the commodities market. The index consists of futures contracts on natural gas.
Microsectors -3X U.S. Big Banks ETN ( BNKD Quick Quote BNKD - Free Report) – Up 17.3%
U.S. treasury yields seesawed last week. Recession fears led it to a slump to start the week. Downbeat tech earnings also weighed on the markets and boosted safe-haven trades, dragging down bond yields. The underlying Solactive MicroSectors U.S. Big Banks Index is an equal-dollar weighted index and seeks to provide exposure to the 10 largest U.S. banks and financial services companies. BNKD charges 95 bps in fees.
Real Estate Bear 3X Direxion ( DRV Quick Quote DRV - Free Report) – Up 16.5%
Real estate is a rate-sensitive sector. With the benchmark bond yields staging an uptrend, the inverse leveraged fund DRV slumped. Direxion Daily MSCI Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of MSCI US REIT Index. The expense ratio of DRV is 1.03%.