Post-Rate Hike Depression Pulls This Leveraged ETF Higher

Even though the capital markets have already re-adjusted for a rate hike by the Federal Reserve, the post-hike depression has been driving the most recent sell-offs.

The Direxion Daily S&P 500 Bear 3X ETF (SPXS), however, has been profitable thus far. During Thursday’s trading session, SPXS finished the day up 10%, which is a sign of the times in the major stock market indexes.

Traders can leverage S&P 500 inverse strength with SXPS. The fund seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.

For the year, SPXS is up over 35%, underscoring the inflation fears that have been racking the S&P 500 in 2022. The markets expect more tightening ahead, which could further pull SPXS higher if a rally can’t bring the S&P 500 back to life.

“Despite the tightening that we have seen in financial conditions over the last few months, it is clear that the Fed would like to see them tighten further,” said Zachary Hill, head of portfolio strategy at Horizon Investments. “Higher equity valuations are incompatible with that desire, so unless supply chains heal rapidly or workers flood back into the labor force, any equity rallies are likely on borrowed time as Fed messaging becomes more hawkish once again.”

SPXS Chart

“Truly Extraordinary” Market Movements

Almost needless to say, there have been unprecedented moves in the market so far in 2022. Volatility, based on the CBOE Volatility Index (VIX), has spiked as high as over 80% three times this year, and we’re only through one quarter.

“If you go up 3% and then you give up half a percent the next day, that’s pretty normal stuff. … But having the kind of day we had yesterday and then seeing it 100% reversed within half a day is just truly extraordinary,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.

VIX Chart

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