Wall Street delivered a decent-to-upbeat performance last week, mainly on earnings strength and a strong U.S. economy. The S&P 500 added 1.0%, the Dow Jones advanced 0.7%, the Nasdaq added 2.0% and the Russell 2000 popped 1.1% in the week under review.
Key developments of the week included an expected 25-bps rate hike by the Fed, better-than-expected U.S. GDP data for Q2, some upbeat earnings results from tech biggies and the shocking policy meeting by Bank of Japan (BoJ).
Inside the Fed’s Rate Hike
The Federal Reserve raised its benchmark interest rate by 0.25% on Wednesday, leaving room for more hikes this year. Short-term rates are now in the 5.25%-5.50% range, the highest since March 2001. This is the 11th increase since March 2022, and the Fed stated that future hikes would depend on the economy and financial developments. The decision was unanimous.
Solid Q2 U.S. Economic Growth
The American economy surprisingly picked up pace in the second quarter, thanks to resilience among consumers and businesses in the face of high interest rates. This is especially true as GDP grew 2.4% annually from 2% growth in the first quarter. The data also beat
market expectations of 2% growth. BoJ’s Policy Shocker
The BoJ's recent policy will now allow 10-year Japanese government bond (JGB) yields to fluctuate around the 0% target level within a range of approximately plus and minus 0.5 percentage points. However, the central bank decided to increase its tolerance level by 50 basis points, offering to purchase 10-year JGBs at 1% through fixed-rate operations. This move signifies greater flexibility in managing the yield curve.
Investors should note that BoJ had introduced a fresh set of changes to its ongoing policies in the September 2016 meeting. The key change then was that the bank would control the bond yield curve. It would issue a zero-interest-rate target for 10-year government bonds to counter deflationary threats and accordingly buy bonds. Markets termed Japanese measures as QQEYCC.
Fed's preferred inflation measure showed cooling price increases in June. The Personal Consumption Expenditures (PCE) Index grew 3.0% year over year in June, down from 3.8% the month prior and in line with expectations. "Core" PCE, which bars the volatile food and energy categories, grew 4.1%, down from 4.6% from the month prior and below the 4.2% economists surveyed by Bloomberg had expected,
as quoted on Yahoo Finance.
Against this backdrop, below we highlight a few winning leveraged ETFs of last week.
ETFs in Focus Direxion Daily FTSE China Bull 3X Shares ( YINN Quick Quote YINN - Free Report) – Up 27.3%
Global hedge funds scooped up Chinese equities following the latest politburo meeting. Buying was at the fastest pace since October 2022, Goldman Sachs said in a report,
as quoted on CNA. The higher inflows were led by mainland A-shares and then Hong Kong-listed shares. The meeting clearly indicated support for capital markets and signaled the introduction of bigger easing measures to shore up the economy. GraniteShares 1.5x Long Meta Daily ETF ( FBL Quick Quote FBL - Free Report) – Up 16.2%
Meta Platforms (META) reported solid second-quarter 2023 results, wherein it outpaced revenue and earnings estimates. The company posted its first double-digit revenue growth since 2021, boosted by the artificial intelligence (AI) craze. Further, Meta Platforms issued upbeat revenue guidance for the current quarter (read:
ETFs to Tap on Meta's Blowout Q2 Earnings). Direxion Daily GOOGL Bull 1.5X Shares ETF ( GGLL Quick Quote GGLL - Free Report) – Up 15.9%
GOOGL Quick Quote GOOGL - Free Report) came up with better-than-expected second-quarter earnings and revenues. According to Reuters, Alphabet's performance was bolstered by a consistent surge in demand for its cloud services, coupled with a resurgence in advertising activities. Google's cloud division, encompassing infrastructure and productivity applications, witnessed a remarkable 28% surge in revenue (read: Alphabet Heavy ETFs in Focus After Upbeat Q2 Earnings). Direxion Daily Regional Banks Bull 3X Shares ( DPST Quick Quote DPST - Free Report) – Up 14.5%
Big banking earnings came in upbeat in the ongoing reporting season. While this lifted the mood around the overall financial sector, a steepening yield mainly perked up regional banks. A resilient consumer base and a better-than-expected U.S. economic recovery favored regional bank investing. A cheaper valuation was another positive for the space.