Wall Street was upbeat last week asthe S&P 500 (up 1.4%), the Dow Jones (up 1.2%), the Nasdaq Composite (up 1.7%) and the Russell 2000 (up 0.5%) remained in the positive territory. Abating banking crisis and a less-hawkish Fed led to the rally in Wall Street.
As expected, the Federal Reserve hiked its benchmark interest rate by 25 bps last week. The latest hike took it to a target range of 4.75%-5.00%, the highest since October 2007. The move also marked the ninth increase in rates since March 2022.
However, the Fed’s language in its statement was notably milder from the last meeting, even as it clearly stated that inflation is still “elevated.” The Fed also indicated that “some additional policy firming may be appropriate.”
In a statement, the Fed said recent banking sector developments are likely to bring "tighter credit conditions for households and businesses.” The Fed now expects the real GDP growth to be 0.4% for 2023, (down from 0.5% projected in December) and 1.2% for 2024 (down from 1.6% projected in December).
The Fed also expects the PCE inflation to be 3.3% for 2023 (up from 3.1% projected in December). However, the PCE inflation projection remained unchanged at 2.5% for 2024. The Fed Funds rate is expected to remain unchanged at 5.1% for this year, increase to 4.3% for 2024 (up from 4.1% projected in December) and unchanged at 3.1% for 2025.
However, U.S. Treasury secretary Yellen said that the Biden administration is not considering a move to broaden deposit insurance to protect savers with balances above $250,000 in the near term. This remark caused some volatility in the market.
In the corporate news segment, renowned short seller Hindenburg attacked U.S.-based technology services firm
Block ( SQ Quick Quote SQ - Free Report) , which lost about 15% on Mar 23. Hindenburg Research said that the company permitted criminal activity with less strict controls and that it “highly” inflates Cash App’s transacting user base, a key metric of performance, per CNBC (read: Time to Buy Crypto ETFs on Hindenburg-Led Block Plunge?).
Against this backdrop, below we highlight a few inverse/leveraged ETFs that emerged winners last week.
ETFs in Focus FTSE China Bull 3X Direxion ( YINN Quick Quote YINN - Free Report) ) – Up 12.8%
Amid banking crisis in the United States and Europe, China is a ‘relative safe haven’,
per Citigroup, as quoted on CNBC. The economic reopening of China has boosted its growth prospects. Also, the People's Bank of China (PBOC) recently said that it would slash the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points (bps), effective March 27.
The move should bolster China equity investing. Such policy easing also indicates a remarkable move by China while majority of G-20 economies are opting for policy tightening.
MSCI Mexico Bull 3X Direxion ( MEXX Quick Quote MEXX - Free Report) ) – Up 12.6%
Currencies of resource-rich Latin America, have benefited from a largely weaker dollar last week and rising commodity prices in the wake of the U.S. Federal Reserve signaling that it may stop its interest rate increases.
The Mexican economy grew 0.5% sequentially in Q4 of 2022, slightly above preliminary estimates of a 0.4% gain and easing from a revised 0.9% expansion in the previous period. Real GDP growth of Mexico is projected to slow from 2.5% this year to 1.6% in 2023, but to edge up to 2.1% in 2024.
Microsectors FANG+ 3X ETN ( FNGU Quick Quote FNGU - Free Report) ) – Up 8.9%
The benchmark U.S. treasury yield fell to 3.38% on Mar 24, 2023 from 3.47% recorded at the start of the week. As the U.S. treasury yields dived last week and the Fed adopted a less-hawkish tone, FANG+ stocks gained. FANG+ stocks perform better in a low-rate environment.
S&P Biotech Bear -3X Direxion ( LABD Quick Quote LABD - Free Report) ) – Up 8.8%
The space has been struggling for quite some time now. Due to higher rates, absence of cheaper capital and ebbing pandemic, the
initial public offering market stalled in 2022. There was a reduction in the number of new drug approvals. Moreover, the smaller banks have considerable exposure to the biotech sector’s funding. With the crash of smaller banks, the sector is likely to face funding crisis. Microsectors Gold Miners 3X ETN ( GDXU Quick Quote GDXU - Free Report) ) – Up 8.7%
The Fed indicated that further increases in borrowing costs might be postponed (or there may be just one more rate hike worth 25 bps this year) due to the recent failure of two U.S. banks. A low-interest-rate environment makes non-yielding bullion an intriguing bet. Plus, gold is traditionally viewed as an inflation hedge and thus is well-positioned to take advantage of the recent spike in global inflation. As the risk-off trade sentiments have prevailed lately, safe-haven asset gold investing gained strength.