Wall Street was downbeat last week, probably due to the relentless market forecasts of a looming recession and an uncertain Fed rate outlook. The S&P 500 Index was down 3.4%, the Dow Jones lost 2.8%, the Nasdaq declined 4% and the Russell 2000 was off 5.1%. Rising rate concerns were rife last week.
Goldman Sachs, Bank of America and JPMorgan predict U.S. recession in 2023. “Inflation is eroding everything I just said and that a trillion and a half dollars will run out sometime midyear next year,” I.P. Morgan CEO Dimon said, as quoted on investing.com.
Looking at the projections, the recession model calculated by New York Fed estimates a 38% probability of a recession in the United States in November 2023 (readings above 30% are historically harbingers of an economic downturn). Per the Fed’s latest dot plots, the terminal rate for 2023 is given as 4.6%, the investing.com article mentioned.
Traders expect the Fed to raise its benchmark lending rate in December by a smaller margin of half a percentage point. Yet, rising rate concerns took the markets in its grip last week due to concerns that the Fed may keep rates at the peak level for longer. This diminished hopes for Fed rate cuts in 2023.
As a result, though the benchmark treasury yield slumped on the second day of last week, it staged a rally in the final three days of last week from 3.42% to 3.57%. Notably, the latest bouts of economic data — hotter-than-expected ISM services and stronger jobs — made the matter worse as it cemented the fact that the U.S. economy is still on a decent footing.
Plus, the U.S. producer prices index (PPI) rose slightly more than expected in November amid a jump in the costs of services, according to a report from the U.S. Labor Department. This, in turn, reignited the speculation that the Fed may keep rates at an elevated level in the coming days to tame inflation. However, the ISM Manufacturing PMI declined to 49 in November 2022, pointing to the first contraction in factory activity since May 2020.
Meanwhile, oil prices logged the biggest weekly decline in months. Growing recession fears annulled any supply woes. U.S. West Texas Intermediate crude settled 44 cents lower at $71.02 a barrel, a new low for 2022. Brent crude settled 5 cents lower at $76.10 per barrel, per Reuters.
As rates rose at the end the week, growth sectors like technology and biotech dropped. Stock market volatility levels were high in the week. CBOE Volatility Index gained about 11% in the week due to the afore-mentioned uncertainty. Against this backdrop, below we highlight a few top-performing leveraged ETFs of last week.
ETFs in Focus
Inverse Leveraged Treasury ETFs
20+ Year Treasury Bear 3X Direxion TMV – Up 7.9%
Ultrapro Short 20 Year Treasury ETF TTT – Up 7.4%
Ultrashort Lehman 20 Year Treasury ETF (TBT) – Up 5.1%
Inverse Leveraged Energy ETFs
Microsectors -3X U.S. Big Oil Index ETN NRGD – Up 7.5%
Microsectors Oil & Gas Exp. & Prod. -3X Inverse OILD – Up 6.6%
Inverse Leveraged Biotech ETFs
S&P Biotech Bear 3X Direxion LABD – Up 7.5%
Leveraged Volatility ETFs
2x Long VIX Futures ETF UVIX – Up 4.3%
Inverse Leveraged Small-Cap ETFs
Smallcap Bear 3X Direxion TZA – Up 3.6%
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Direxion Daily S&P Biotech Bear 3X Shares (LABD): ETF Research Reports
Direxion Daily Small Cap Bear 3X Shares (TZA): ETF Research Reports
Direxion Daily 20 Year Treasury Bear 3X Shares (TMV): ETF Research Reports
ProShares UltraPro Short 20 Year Treasury (TTT): ETF Research Reports
MicroSectors Oil & Gas E&P 3x Inverse Leveraged ETNs (OILD): ETF Research Reports
MicroSectors U.S. Big Oil Index 3X Inverse Leveraged ETN (NRGD): ETF Research Reports
2x Long VIX Futures ETF (UVIX): ETF Research Reports
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