The recent stock market rally could be setting up plays for winners to emerge through the second half of 2022. As inflation fears start to dissipate and prices start to come back down, two leveraged funds could garner some interest.
First up, the small-cap rally could be setting up a play for the Direxion Daily Small Cap Bull 3X Shares (TNA). The Russell 2000 is up 14% within the past month, signaling that a rally could be brewing for small-cap stocks.
As for TNA, it tracks the Russell 2000 Index and seeks daily investment results equal to 300% of the daily performance of the index. With the extra leverage in place, the ETF is actually up close to 50% in its year-to-date performance.
“A number of things have gone right driving the better performance,” said equity strategist Steven DeSanctis. “A very good reporting season, one that was better than that of the large caps, and an improvement in many of the macro variables we track. We highlight the tightening of high-yield spreads and slightly weaker dollar as most helpful.”
Small-cap stocks tend to make amplified moves to the upside when markets are trending higher. That could certainly be the case if recession fears continue to dissipate and as prices continue to head lower as the rest of 2022 plays out.
“With the macro backdrop improving and recession fears quieting down, we have seen a very sharp rally by the small caps, and they are now holding up better than the large caps YTD,” said DeSanctis. “This caught active managers flat-footed thanks to lower cap, lower quality, and the big laggards suddenly rebounding. We have seen less than 7% of active folks beat the index since June 16.”
More Wanting, Less Needing
Barring a full-on recession, should economic conditions improve in terms of less inflation, more consumer confidence could re-emerge. As such, consumers could be more apt to open their wallets.
If that’s the case, then traders may want to give the Direxion Daily Consumer Discretionary Bull 3X ETF (WANT) a closer look. WANT seeks daily investment results equaling 300% of the daily performance of the Consumer Discretionary Select Sector Index.
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