The collapse of SVB Financial Group has been dumping a large bucket of volatility in bank stocks, opening up trade opportunities in leveraged exchange-traded funds (ETFs) from Direxion Investments.
The fallout from the SVB debacle also caused shares of regional banks to slide, including the San Francisco-based First Republic, which saw a 60% fall in its share price on Monday, March 13. That spilled over into other bank stocks, causing multiple halts in the trading of shares, according to a Reuters report.
“The real issue for the industry is that there is a crisis of confidence in the stickiness of deposits and when that becomes dislocated, things can move very quickly,” said Christopher McGratty, head of U.S. Bank Research at investment bank KBW.
Because of the threat of a potential banking crisis, U.S. President Joe Biden addressed the situation and vowed to do what was necessary in order to stave off such a crisis. The Reuters report noted that national regulators implemented emergency measures, while First Republic secured additional financing thanks to help from JPMorgan and the U.S. Federal Reserve.
The slide in bank stocks follows the aggressive monetary policy tightening of the Fed as it looks to get inflation under control — which can affect the bottom line of regional banks, especially if a number of their products rely on loans, which consumers are not demanding if rates are too high. According to Art Hogan, chief market strategist at B. Riley Wealth, the market “finding out in real time what the risk of rising interest rates at such a fast pace can do to the balance sheets of some of the regional banks.” The S&P Regional Banks Select Industry Index is down 23% for the year and 26% within the past month.
3 ETF Options to Trade
Rather than focusing on individual stocks amid this volatile time for the banking industry, consider ETFs for broad exposure to the industry. If regional banks can move past the fallout, consider trading the upside with the Direxion Daily Regional Banks Bull 3X Shares (DPST).
DPST seeks daily investment results equal to 300% of the daily performance of the S&P Regional Banks Select Industry Index. The index is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the GICS regional banks sub-industry. Signs of life are starting to show in the fund’s YTD chart with the price moving above its 50-day moving average of late.
For more broad exposure to the financial industry, which can experience a spillover effect the recent events in the banking industry, consider either the Direxion Daily Financial Bear 3X ETF (FAZ) or the the Direxion Daily Financial Bull 3X ETF (FAS). Having both ETFs handy allows traders to take either side whether the financial sector experiences strength or weakness.
Both funds seek daily investment results that equate to 300% of (or the inverse in the case of FAZ) of the daily performance of the Russell 1000® Financial Services Index. The index is a subset of the Russell 1000® Index that measures the performance of the securities classified in the financial services sector of the large-capitalization U.S. equity market
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