The impetus for a continued market rally through the second half of 2023 could be playing out as dissipating inflation fears could propel bullish leveraged exchange traded funds (ETFs) further.
In particular, traders may want to ride the positive momentum in the S&P 500 with the Direxion Daily S&P 500 Bull 2X Shares (SPUU), and if they want an extra dose of leverage, there’s the Direxion Daily S&P 500 Bull (SPXL). As mentioned, both funds utilize leverage, offering amplified trades without having to use a margin account for extra juice.
Big tech’s dominance this year has been well documented, with the Nasdaq-100 rising over 40%. That said, traders may also want to continue putting their faith in big tech using the Direxion Daily Technology Bull 3X ETF (TECL).
Right now, it seems the markets are more keen to focus on the positive as opposed to what could potentially be looming. In particular, the threat of a recession still remains a wild card, but if inflation numbers continue to tick lower, those fears could be easily allayed.
Loosening Monetary Policy
The capital markets were widely expecting 2023 to be the year that the U.S. Federal Reserve would begin loosening monetary policy. While inflation was proving to be stickier and more stubborn than originally anticipated, they may just get what they want in the second half of 2023.
Recent inflation data is providing the support for the re-energized optimism in the second half of 2023. Producer price data is starting to show signs that inflation could be under control.
“U.S. producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years,” a Reuters report said. “Keeping a lid on optimism, a separate report showed weekly jobless claims unexpectedly fell last week, indicating that the labor market remains tight.”
The report noted that traders are expecting “a 20% probability that the central bank will hike borrowing costs in its November meeting but have fully priced in a 25-basis-point rate hike later in July.” With inflation fading into the background, earnings now come into the forefront.
“The giant oil tanker of inflation, so to speak, is turning toward a less inflationary path, and that is having broad impact across the market,” said David Russell, vice president of market intelligence at TradeStation. “Investors are now at a point where they’re like ‘let’s focus on earnings’.”
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