At the start of the week, it was a good to be a bull, but now it appears that the markets are tipping in favor of the bears as a vaccine rally starts to lose steam. With a recent investor rotation out of the growth-fueled tech sector, bearish traders are making out like a bandit, which could fuel leveraged inverse ETFs like the Direxion Daily S&P 500 Bear 3X ETF (NYSEArca: SPXS).
SPXS seeks daily investment results equal to 300 percent of the inverse of the daily performance of the S&P 500 Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80 percent of the fund’s net assets (plus borrowing for investment purposes).
On the heels of a news outlets proclaiming former vice president Joe Biden the winner of the U.S. presidential election, positive news about a vaccine from Pfizer gave the markets a swift kick in the pants. However, as the week wore on and more coronavirus cases emerged, the air has been coming out of the proverbial balloon.
During Thursday’s trading session, the Dow Jones Industrial Average fell over 300 points in the U.S. In Europe, major indexes did the same.
“Equities have moved lower this morning, as the vaccine bounce begins to fade across markets. After days of gains the rally in equities is beginning to slow down, as indices throughout Europe move into the red,” said Chris Beauchamp, Chief Market Analyst at IG in an email. “As enthusiasm about a vaccine begins to fade the FTSE 100 has lost ground, with a slowdown in the excited buying of hard-hit value names in sectors like travel, airlines, banks and others.”
Out With Tech, In With Value
The S&P 500 has some of the biggest tech names like Amazon and Google’s parent company Alphabet. With a rotation out of tech into value, this should help bearish traders using tools like SPXS.
“US futures are also weaker, as the ‘rotation’ of the last few days gives way to a more ‘normal’ pattern as investors flow back towards oversold tech stocks,” Beauchamp added. “Political developments, or lack thereof, continue to have little impact, with the lack of any White House pronouncements helping to calm market nerves about the US political outlook.”
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