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Geopolitics Ruled Last Week: Best Inverse/Leveraged ETF Areas

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The Israel-Gaza war grabbed all attention last week. Israel declared war on Hamas after the Palestinian militant group staged a surprise attack over the last-to-last weekend. The S&P 500 (up 0.5%), the Dow Jones (up 0.8%), and the Nasdaq (down 0.2%) advanced by a slight margin, while the Russell 2000 (down 1.5%) slumped. Volatility product iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) surged 12% last week as a spike in inflation data bolstered the bets over one more Fed rate hike this year. 

The consumer price index increased 0.4% sequentially and 3.7% year over year in September, according to a Bureau of Labor Statistics report. Dow Jones estimates were 0.3% and 3.6%, respectively. The core inflation number, barring food and energy prices, matched economists’ expectations of an increase of 0.3% in the month and 4.1% on a year-over-year basis. The data follows a stronger-than-expected producer price index reading for September (read: 4 Sector ETFs to Win on Sticky Inflation).

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

ETFs in Focus

Leveraged Gold Miners

MicroSectors Gold Miners 3X Leveraged ETN (GDXU - Free Report) – Up 22.1%

MicroSectors Gold 3X Leveraged ETNs (SHNY - Free Report) – Up 16.0%

Direxion Daily Gold Miners Index Bull 2x Shares (NUGT - Free Report) – Up 15%

Gold is often viewed as a hedge against market risk. In times of geopolitical tension, it is normal to seek a flight to safety, which is why we have seen the demand for gold bullion increase. The Middle East crisis, in turn, dragged down the benchmark U.S. treasury bond yields as demand for U.S. treasuries rose because this too is seen as a market risk hedge (read: Time to Buy Leveraged Gold ETFs on Safe-Haven Bid?).

Leveraged Energy

MicroSectors Oil & Gas Exp. & Prod. 3x Leveraged ETN (OILU - Free Report) – Up 14.9%

MicroSectors Energy 3X Leveraged ETNs (WTIU - Free Report) – Up 14.3%

MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 14%

The Middle East is a key player in the global oil exploration market, making up more than 30% of the world's oil production. Any instability in the region has the potential to disrupt oil supplies and send ripples through the global economy.

Despite no immediate oil supply disruptions, market watchers like Andy Lipow, the president of Lipow Oil Associates, warn that the initial oil market reaction is driven by fears of the conflict spreading to other regions like Iran, per a Yahoo Finance article. Iran is both a key oil producer and a supporter of Hamas. As a result, leveraged energy ETFs surged last week (read: Oil Soars On Israel-Hamas Conflict: Sector ETFs to Gain/Lose).

Leveraged Volatility

2x Long VIX Futures ETF (UVIX - Free Report) – Up 13.1%

Last week was roiled by geopolitical concerns and worries over the Fed’s subsequent actions. This, in turn, caused volatilities in the market.

Leveraged Aerospace & Defense

Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) – Up 12.5%

Shares of defense companies amid the fighting in Israel and Gaza.  The assault included rockets, infiltrations, and the capture of soldiers, exacerbating tensions. Due to this war-like situation, shares of arms makers — including Northrop Gruman Corp, L3Harris Technologies Inc., Huntington Ingalls Industries Inc., Lockheed Martin Corp. and General Dynamics Corp — surged lately (read: Defense ETFs Spike on Middle East Tensions).

Leveraged Utilities

Direxion Daily Utilities Bull 3X Shares (UTSL - Free Report) – Up 10.5%

Benchmark U.S. Treasury yields were largely subdued last week. It started the week at 4.78%, hit a weekly low of 4.58% and closed the week at 4.63%. As interest rates dived, rate-sensitive sectors like utilities surged.

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