There’s lots of volatility to go around in the major stock market indexes these days, and a rotation out of technology could actually end up benefiting the Direxion Daily Technology Bear 3X ETF (TECS).
The Dow Jones Industrial Average fell over 500 points in last Friday’s trading session as inflation fears and the Omicron variant continued to give investors a roller coaster ride. The markets could also be digesting the idea that forthcoming rate hikes will happen in 2022 amidst the Fed announcing three potential hikes in the new year.
As a result of these potential headwinds, investors are rotating out of tech stocks that were the darlings of 2020. Social distancing measures forced heavier reliance on technology, and now, investors may feel that tech has gotten overvalued heading into 2022.
The S&P 500 Information Technology sector index fell 4% within the last five days.
“As the Federal Reserve turns more hawkish and expectations for higher interest rates rise, investors are lowering exposure to growth stocks,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “Typically, growth stocks exhibit a higher duration compared to value stocks because a higher proportion of their cash flows will be received in the more distant future.”
Profiting Off Tech Weakness
TECS seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the Technology Select Sector Index. The index is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector.
The fund is up about 12% while the S&P 500 Information Technology sector index fell within the same time period. Investors who err more on the bullish side of things may or may not get a Santa Claus rally as 2021 starts to wind down.
“Trading will remain very choppy for the rest of the year as investors grapple with falling trading volumes over the coming sessions,” said Edward Moya, senior market analyst at Oanda.
Should tech regain its mojo, traders can always play the bullish side. That can be had using the Direxion Daily Technology Bull 3X ETF (TECL), which seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Technology Select Sector Index.
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