The fourth and final quarter of what’s been mostly a forgettable 2022 could end in a rally. At least, that’s what early October is hinting at, which could prop up leveraged S&P 500 exchange traded funds (ETFs) like the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL).
The S&P 500 index is down about 21% through the first three quarters of the year, battered by inflation fears and the threat of a recession as inverted yield curves in the bond market are waving red flags. Positive trading sessions in early October, however, could be hinting at a rally, which should give bullish S&P traders some hope.
“After falling more than 9% in September and extending its year-to-date decline to nearly 25% as of Friday’s close, we think the S&P 500 was looking oversold,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “In addition, some of last week’s selling pressure may have been driven by quarter-end rebalancing, which has now ended.”
SPXL seeks daily investment results equal to 300% of the daily performance of the S&P 500 Index. It can provide traders with another tool in the box when it comes to maximizing profits, especially if a year-end rally in the S&P 500 plays out.
“Any time you have a very negative start with the first nine months of the year, especially to the tune of down over 20%, usually pertains to a double-digit increase in terms of prices for the fourth quarter,” said market strategist Brian Belski in a Fox Business report.
The Other Side
Of course, if the opposite occurs, there’s also inverse options to consider such as the Direxion Daily S&P 500 Bear 3X ETF (SPXS). The fund essentially goes in the opposite direction as SPXL, giving traders another tool in their arsenal in order to extract gains in any market.
Despite all the optimism, there is still the threat of a recession floating about in the economy. Fresh off another 75 basis point rate hike, the U.S. Federal Reserve could continue tightening monetary policy to the detriment of economic growth.
“Excessive monetary tightening could usher in a period of stagnation and economic instability,” said the United Nations Conference on Trade and Development (UNCTAD), according to a Yahoo! Finance report.
“Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble,” the UNCTAD added further.
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