Financials ETF Jumps Higher as Investors Digest Corporate Earnings

Corporate earnings are providing the fodder for traders to capitalize on opportunities in flourishing sectors like financials. In particular, traders can look at the Direxion Daily Financial Bull 3X ETF (FAS).

The ETF is up about 10% on the year as the capital markets start to digest more earnings. In what’s been a roller coaster month to start 2022, equities are back on the path to bullishness with the financial sector among the leaders of the pack.

The major stock market indexes were in the green during Tuesday’s trading session. It seems that inflation fears were put to the side for now as corporate earnings flourished.

“The S&P 500 reversed losses as Wall Street rotated into materials, technology, and financial stocks,” said Edward Moya, senior market analyst at Oanda, in a note to clients. “Now that we are both over the hump with earnings season and investors are prepared for another hot inflation report, the ongoing rotation trade will likely continue. Today, traders are finding value in tech and embracing financials as global bond yields steadily increase.”FAS Chart

FAS seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Russell 1000® Financial Services Index. The index is a subset of the Russell 1000® Index, which measures the performance of the securities classified in the financial services sector of the large-capitalization U.S. equity market. The fund is up almost 60% year-to-date.

FAS pushed below its 200-day moving average before a strong comeback heading into February. Now, it’s trading above the 200-day and 50-day moving averages, with momentum still on an upward climb towards overbought levels when looking at the relative strength index (RSI).

FAS Chart

Inflation Numbers Ahead

Within the past five days, FAS went up 8% with the notion that traders are anticipating hawkishness with the Federal Reserve when it comes to interest rate policy. With inflation numbers ahead, namely the consumer price index (CPI), rising rates could translate to stronger revenues on lending products for financial institutions like banks.

“It’s reasonable to expect that stocks are going to be in a holding pattern before Thursday’s CPI release. I think it is encouraging we are seeing the market absorb the rise in long-term yields pretty well,” said Angelo Kourkafas, investment strategist at Edward Jones.

“At this point it is a tug-of-war between solid corporate and economic fundamentals and monetary policy tightening,” Kourkafas added.

FAS Chart

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