The Nasdaq 100 rallying 40% for the year could have the capital markets wondering if the big tech rally has run its course. If that’s the case, there are other opportunities to consider in the short-term horizon.
The big question is whether the U.S. economy will slip into a recession after prolonged inflation and rising interest rates? In a Markets Insider article, Citi Private Bank strategist Robert Hoffman doesn’t think a recession is forthcoming and even if it is, it could happen much later than expected.
This creates an environment where investors can cycle out of big tech and into other opportunities. For example, mid-caps and small-caps could outperform after their large-cap counterparts have been leading much of the 2023 rally.
“What we were originally anticipating – a recession towards the end of 2023 – has now been pushed very far off, we’re actually looking much closer to the end of 2024 now,” Hoffman told CNBC International.
“We think the US mid-cap space offers very compelling valuations and an opportunity if you do avert a recession or should it get pushed further out,” he added.
Large caps have been fueling much of the rally with big tech, as mentioned, leading the way. However, big tech names may be exhibiting early signs of froth. This paves the way for more value plays in mid-caps and small-caps.
2 ETFs to Consider
If Hoffman’s intuitions are correct, then mid- and small-cap trade opportunities are present in leveraged exchange traded funds (ETFs). For mid-cap exposure, consider the Direxion Daily Mid Cap Bull 3X Shares (MIDU), which seeks daily investment results equal to 300% of the daily performance of the S&P MidCap 400 Index.
Additionally, for small cap exposure, another opportunity for short-term trades is the Direxion Daily Small Cap Bull 3X Shares (TNA). The fund tracks the Russell 2000 Index. It seeks daily investment results equal to 300% of the daily performance of the index.
Leveraged funds can provide traders with strategic exposure to niche corners of the market like mid- and small-caps. However, they should only be utilized by seasoned market players.
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