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Last week was the worst for Wall Street this year as bank shares caused a catastrophe in the market after SVB Financials’ efforts to raise capital triggered concerns about the sector's health. U.S. bank stocks suffered the sharpest decline in nearly three years, with the KBW Nasdaq Bank Index tumbling as much as 8.7% on Mar 9, its biggest one-day drop since June 2020. The index lost 15.8% last week.
The banking rout led the S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 to lose about 4.6%, 4.4%, 4.7% and 8.1%, respectively, last week.
Inside the Catastrophe
On Wednesday evening, Silicon Valley Bank announced it was planning to raise $2 billion to solidify its financial position. It also indicated that it had seen an increase in startup clients drawing down their deposits. On Thursday, Silicon Valley Bank crashed by 60%, sending ripple effects across the banking industry.
Silicon Valley Bank caters to risky zones like start-ups, venture capital, and early-stage tech. On Friday morning, CNBC reported that SVB failed to raise the cash. By noon Friday, US regulators shut the bank down. According to the FDIC, this is the second-largest bank failure in U.S. history.
If this was not enough, earlier this month,Silvergate Capital (SI), a crypto-centric bank, started to plunge from already deeply discounted levels for obvious reasons, as cryptocurrency is no longer in favor due to rising rates. Finally, on Wednesday, the company announced it would be conducting a voluntary liquidation and shutting down its doors. The firm had transactions with Sam Bankman Fried’s doomed crypto exchange FTX.
The collapse of both banks can be seen as isolated incidents. Silvergate was associated with the hyper-speculative crypto space, and Silicon Valley Bank was involved in the struggling tech space, that too, newbie tech companies and not the mature ones.
The banking rout led the four largest U.S. banks to lose a combined market cap of more than $50 billion. Meanwhile, the jobs data for the month of February came in upbeat. But the labor market showed signs of easing. The data had been an area of focus as Fed Chair Jerome Powell made hawkish remarks earlier last week, as any cooling in the labor market could influence the Fed to ease the pace of monetary policy tightening.
Labor Market Easing
The United States economy added 311,000 jobs in February of 2023, beating market expectations of 225,000. The unemployment rate in the United States edged up to 3.6% in February 2023, up from a 50-year low of 3.4% recorded in January. Market expectations were also 3.4%.
Fall in Rates
Both incidents triggered a flight to safety. The benchmark U.S. treasury yield ended the week at 3.70%, while it was hovering around 3.98% at the start of the week. The two-year U.S. treasury yield ended the week at 4.60%, while it was 4.89% on Mar 6 and even touched 5.5% in the middle of the week.
Against this backdrop, below, we highlight a few winning inverse/leveraged ETFs of last week.
As volatility levels crept up in the market, leveraged volatility ETF gained massively last week. The underlying Long VIX Futures Index expresses the daily performance of a theoretical portfolio of first and second-month VIX futures contracts that are rolled daily.
Microsectors U.S. Big Banks -3X ETN (BNKD - Free Report) – Up 41.1%
No wonder, inverse leveraged banking ETFs jumped last week due to the banking crisis. The underlying Solactive MicroSectors U.S. Big Banks Index is equal-dollar weighted and seeks to provide exposure to the 10 largest U.S. banks and financial services companies.
Ultrashort Bloomberg Natural Gas -2X ETF (KOLD - Free Report) – Up 40.6%
The latest EIA report showed that the natural gas inventory fell but remained well above the five-year average, which is a headwind to natural gas prices. As a result, inverse leveraged natural gas ETF jumped.
Silicon Valley Bank used to lend to small biotech companies. Thus the fall of that bank sent shockwaves across the biotech industry. The underlying S&P Biotechnology Select Industry Index is designed to measure the performance of a sub-industry or group of sub-industries determined by the Global Industry Classification Standards.
A banking crisis means a funding crisis in the small-cap sector. These companies normally have a less cash cushion and thus the small-cap segment was hurt the most last week. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and comprises the smallest 2000 companies on the Russell 3000 Index.
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Best Inverse/Leveraged ETF Areas of Last Week
Last week was the worst for Wall Street this year as bank shares caused a catastrophe in the market after SVB Financials’ efforts to raise capital triggered concerns about the sector's health. U.S. bank stocks suffered the sharpest decline in nearly three years, with the KBW Nasdaq Bank Index tumbling as much as 8.7% on Mar 9, its biggest one-day drop since June 2020. The index lost 15.8% last week.
The banking rout led the S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 to lose about 4.6%, 4.4%, 4.7% and 8.1%, respectively, last week.
Inside the Catastrophe
On Wednesday evening, Silicon Valley Bank announced it was planning to raise $2 billion to solidify its financial position. It also indicated that it had seen an increase in startup clients drawing down their deposits. On Thursday, Silicon Valley Bank crashed by 60%, sending ripple effects across the banking industry.
Silicon Valley Bank caters to risky zones like start-ups, venture capital, and early-stage tech. On Friday morning, CNBC reported that SVB failed to raise the cash. By noon Friday, US regulators shut the bank down. According to the FDIC, this is the second-largest bank failure in U.S. history.
If this was not enough, earlier this month,Silvergate Capital (SI), a crypto-centric bank, started to plunge from already deeply discounted levels for obvious reasons, as cryptocurrency is no longer in favor due to rising rates. Finally, on Wednesday, the company announced it would be conducting a voluntary liquidation and shutting down its doors. The firm had transactions with Sam Bankman Fried’s doomed crypto exchange FTX.
The collapse of both banks can be seen as isolated incidents. Silvergate was associated with the hyper-speculative crypto space, and Silicon Valley Bank was involved in the struggling tech space, that too, newbie tech companies and not the mature ones.
The banking rout led the four largest U.S. banks to lose a combined market cap of more than $50 billion. Meanwhile, the jobs data for the month of February came in upbeat. But the labor market showed signs of easing. The data had been an area of focus as Fed Chair Jerome Powell made hawkish remarks earlier last week, as any cooling in the labor market could influence the Fed to ease the pace of monetary policy tightening.
Labor Market Easing
The United States economy added 311,000 jobs in February of 2023, beating market expectations of 225,000. The unemployment rate in the United States edged up to 3.6% in February 2023, up from a 50-year low of 3.4% recorded in January. Market expectations were also 3.4%.
Fall in Rates
Both incidents triggered a flight to safety. The benchmark U.S. treasury yield ended the week at 3.70%, while it was hovering around 3.98% at the start of the week. The two-year U.S. treasury yield ended the week at 4.60%, while it was 4.89% on Mar 6 and even touched 5.5% in the middle of the week.
Against this backdrop, below, we highlight a few winning inverse/leveraged ETFs of last week.
ETFs in Focus
2x Long VIX Futures ETF (UVIX - Free Report) – Up 43.2%
As volatility levels crept up in the market, leveraged volatility ETF gained massively last week. The underlying Long VIX Futures Index expresses the daily performance of a theoretical portfolio of first and second-month VIX futures contracts that are rolled daily.
Microsectors U.S. Big Banks -3X ETN (BNKD - Free Report) – Up 41.1%
No wonder, inverse leveraged banking ETFs jumped last week due to the banking crisis. The underlying Solactive MicroSectors U.S. Big Banks Index is equal-dollar weighted and seeks to provide exposure to the 10 largest U.S. banks and financial services companies.
Ultrashort Bloomberg Natural Gas -2X ETF (KOLD - Free Report) – Up 40.6%
The latest EIA report showed that the natural gas inventory fell but remained well above the five-year average, which is a headwind to natural gas prices. As a result, inverse leveraged natural gas ETF jumped.
S&P Biotech Bear -3X Direxion LABD – Up 32.7%
Silicon Valley Bank used to lend to small biotech companies. Thus the fall of that bank sent shockwaves across the biotech industry. The underlying S&P Biotechnology Select Industry Index is designed to measure the performance of a sub-industry or group of sub-industries determined by the Global Industry Classification Standards.
Smallcap Bear -3X Direxion (TZA - Free Report) – Up 27.5%
A banking crisis means a funding crisis in the small-cap sector. These companies normally have a less cash cushion and thus the small-cap segment was hurt the most last week. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and comprises the smallest 2000 companies on the Russell 3000 Index.