Positive news surrounding big tech is hard to come by these days. In recent news, big tech is resorting to mass layoffs, but that hasn’t stopped the Direxion Daily Technology Bull 3X ETF (TECL) from gaining over 25% within the past month.
Just a couple of years ago, big tech was one of the few sectors that was thriving when the COVID-19 pandemic put a dent into the stock market. With social distancing measures firmly in place, society would have to rely heavily on technology in order to conduct business or communicate with loved ones.
Now, it seems like the world is adjusting to the new normal of technological communication while the re-opening of the economy is also decreasing tech’s leverage. Add inflation to the mix, and you get a big tech that’s been battered for most of 2022.
With a gloomy forecast on the horizon, big tech firms are resorting to layoffs in order to minimize the impact of the economic fallout.
“Major technology companies that saw an explosion of growth during the early part of the coronavirus pandemic are bleeding thousands of jobs as high interest rates and a slowing economy turn against the industry,” The Hill reported. “Amazon, Meta, Twitter, Stripe and a slew of other Big Tech firms have announced layoffs over the past month, all citing a decline in revenue and a deteriorating outlook for the global economy.”
Despite this, big tech hopes to regain its footing in 2023. If TECL’s recent strength is an early sign of a comeback, traders can build off this in hopes that a big tech bounce may occur sooner rather than later.
With its triple leverage, TECL is certainly not for the weak of heart. The fund seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Technology Select Sector Index. The index includes domestic companies from the technology sector.
Recession or No Recession
Like many other sectors, big tech’s comeback will also be dependent on whether a recession hits or not. All eyes will be on the U.S. Federal Reserve and whether economic data gives it reason to pump the brakes on interest rate hikes.
Until then, it’s anybody’s guess, and that uncertainty could feed into more volatility ahead. Of course, traders thrive off volatility, so that could be a good thing.
“As the market is going back and forth between if the U.S. economy will actually fall into a recession or not, people are taking a look at the more economically sensitive sectors and trying to understand what could do well and what may not do well if a recession is coming,” said Callie Cox, an investment analyst at online investment platform eToro.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.