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5 Inverse/Leveraged ETFs of Last Week

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Wall Street delivered a mixed performance last week due to the concerns regarding the ongoing banking crisis made up somewhat by the bets over a less hawkish Fed. The S&P 500 (up 1.4%), the Dow Jones (down 0.2%), the Nasdaq Composite (down 4.4%) and the Russell 2000 (down 2.6%).

Inside the Banking Crisis

Concerns about the U.S. banking sector prolonged last week despite measures by U.S. regulators to counter the fallout from Silicon Valley Bank’s (SVB) failure. Silicon Valley Bank failed to raise $2 billion in cash as its startup clients withdrew their deposits. The SVB stock crashed on the news, sending ripple effects across the banking industry.

U.S. regulators shut the bank down. It is the second-largest bank failure in U.S. history. Then, Signature Bank customers withdrew more than $10 billion in deposits, leading U.S. regulators to seize Signature Bank in the third-biggest bank failure in the country’s history.

If this was not enough, First Republic Bank, which was walking the same route as its failed peers, secured a rescue package of $30 billion from a group of America’s largest banks, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.

The crisis shook the global markets, too, as European equities slumped last week — the most since mid-December. Like U.S. banking, the European banking sector was severely hit. The center of crisis across the pond was Credit Suisse.

The flagship Swiss lender's shares nosedived on fears of a debt default. Finally, UBS has agreed to buy the struggling Credit Suisse for more than $3 billion in a historic deal (read: Should You Invest in Europe ETFs Despite Credit Suisse Crisis?).

Fed Rate Hike Bets Lessened

Wall Street may record a short-term rally as wagers on steep rate hikes have cooled down. Per CME Fed Watch Tool, there is a 62% chance of a 25-bp rate hike this week (versus an 81.9% chance recorded a month ago), a 38% chance of no rate hike (versus a 0% chance recorded a month ago) and 0% chance of a 50-bp rate hike (versus 18.1% chance recorded a month ago).

Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. financial system. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike, if it at all happens.

GICS Sector Changes

After the close on Mar 17, S&P Dow Jones and MSCI reclassified the Global Industry Classification Standard (GICS) structure. This influenced 14 S&P 500 companies. The current GICS structure includes 11 sectors, which remained unchanged. The reclassification of firms occurred across five GICS sectors. These are consumer discretionary, consumer staples, financials, industrials, and information technology.

 UBS estimates financials weight in the S&P 500 to increase by 2.7% and information technology to decline by 3.2%. UBS also estimates that the weight of the consumer discretionary sector in the S&P 500 will likely fall by 0.5% and consumer staples will likely gain by 0.5% (read: GICS Sector Changes: Impact on Sector ETFs).

Against this backdrop, below we highlight a few winning inverse/leveraged ETFs of last week.

ETFs in Focus

Graniteshares Coinbase 1.5X Daily ETF (CONL - Free Report) ) – Up 64.8%

Bitcoin surged to the highest since June as the space gathered momentum. Bitcoin, the largest cryptocurrency, suffered a lot initially due to the collapse of banks that had business relations with a number of crypto firms. However, such a crisis strengthened the bet that the Federal Reserve would pause interest-rate increases. Bitcoin is viewed by traditional investors as a high-risk asset due to its volatility. As a result, easy financial conditions are favorable for bitcoin trading.

“We are now for the first time really hearing from clients that they perceive bitcoin as a safe haven,” said Christopher Bendiksen, head of bitcoin research at digital-asset management firm CoinShares, as quoted on a Wall Street Journal article. While some cryptocurrencies are tied to the dollar, others, like bitcoin, aren't dependent on specific banks for users to redeem funds, per the Wall Street Journal article. This has given a boost to crypto-centric ETFs amid hopes for a less hawkish Fed.

Microsectors Gold Miners 3X ETN (GDXU - Free Report) – Up 36.7%

Gold is considered to be a safe as well as an inflation-protected asset. If the pace of Fed rate hike slows, U.S. dollar will likely decline ahead. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) has gained only 0.4% past week due to the banking crisis. If the greenback falls, gold prices will gain as the metal is priced in U.S. dollars. Gold mining stocks are considered leveraged plays of the underlying metal. Though silver is not viewed as a safe asset like gold, most precious metals offer safety to some extent.

Microsectors U.S. Big Banks -3X ETN (BNKD - Free Report) – Up 31%

As the banking crisis has been hitting headlines for the past two weeks, it is anybody’s guess that the inverse-leveraged bank ETN would see solid gains as investors have every reason to short bank stocks now. This is especially true given First Republic shares slumped almost 33% after deposit injection, dragging down other regional banks (read: How to Profit From Banking Carnage With Inverse ETFs).

Microsectors Fang+ 3X ETN (FNGU - Free Report) ) – Up 28.1%

As the rates slumped last week due to increased volatility in the market, high-growth tech stocks surged. These high-profile FANG+ stocks have suffered a lot past year due to higher rates. But now, the segment heaved a sigh of relief, at least for the for the short term. 

Ultrashort Bloomberg Crude Oil -2X ETF(SCO - Free Report) – Up 25.8%

Optimism in the oil space due to the China's economic recovery was marred by the latest global banking crisis and the resultant recessionary fears and the associated fall in oil demand. The WTI crude ETF USO lost about 10% last week.This explains why inverse-leveraged crude oil ETF jumped last week (read: What Lies Ahead for Oil & Energy ETFs in the Medium Term?).

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