Inflation Data Could Be Minor Speed Bump for SPXL | ETF Trends

After reaching highs last week, the S&P 500 retreated to start this week, but even with inflation data ahead, more gains could come for the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL).

The fund is up over 100% this year thanks to fundamental drivers for the S&P 500.

“The important drivers of the market, I think, remain intact — earnings and interest rates,” said Leo Grohowski, CIO at BNY Mellon Wealth Management. “I think the Fed gave the equity market what it was looking for… which was an awareness of inflation without an overreaction to inflation. Meanwhile we’re still digesting what’s been a really strong earnings season.”

Even if inflation comes in hotter than what the Federal Reserve expects, momentum is on the side of the S&P 500. While the Fed maintains that inflation is transitory, the long-term horizon should still favor the index.

“I think investors are sounding the all-clear for the equities market here, at least in the short-term, and it’s hard to argue with. We have more concerns when you take a six-month view,” said David Donabedian, CIO of CIBC Private Wealth Management.

Looking back at the past 10 years, the S&P 500 has been outpacing inflation in terms of the month-over-month changes of the U.S. Consumer Price Index. The S&P 500 is up over 280% versus the MoM CPI’s 120% during the last decade.US Consumer Price Index MoM ChartThe disparity is even greater when looking at the CPI’s year-over-year gain over the last 10 years. Even with higher inflation abounding, investing in the S&P can help quell investors’ fears.

US Consumer Price Index YoY Chart

S&P 500 Traders for Bulls and Bears

Traders looking to ride the crest of the S&P 500 wave with leverage can do so with the bullish SPXL. It invests at least 80% of its net assets in financial instruments, such as swap agreements and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

When the crest peaks and the index falls, traders can take the other side with the Direxion Daily S&P 500 Bear 3X ETF (SPXS). SPXS seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.

SPXL ChartFor more news, information, and strategy, visit the Leveraged & Inverse Channel.