A lot of market analysts were touting the safety of the communications sector during the coronavirus sell-off and their optimism was warranted given that social distancing laws would increase the need for remote interaction. Were there too much exuberance for the sector?
“In the topsy-turvy world of coronavirus, the Communication Services sector—a daily lifeline for nearly every American—is the one S&P 500 sector that might come out of the Q1 earnings period looking slightly better than most,” a Benzinga article by JJ Kinahan noted via Yahoo Finance.
Nonetheless, it doesn’t mean the sector could come away from the first quarter unscathed.
“Even if the sector does take some scrapes, any positives could be seen as quite an accomplishment as the nation battles with the scourge of COVID-19 and a growing number of S&P 500 companies pull their earnings guidance,” the report added. “With the economy basically on hold as Americans are mandated to hunker down at home and countless stores and businesses went dark for the time being, the coming Q1 earnings results might be the among the most jarring in many investors’ lifetimes.”
Can Bears “MUTE” the Bulls’ “TAWK”?
Whether traders see the half glass empty or the half glass full, they can trade either side with this pair of communications sector exchange-traded funds (ETFs). For bulls, we have the Direxion Daily Communication Services Index Bull 3X Shares (NYSEARCA: TAWK) and for bears, there’s the Direxion Daily Communication Services Index Bear 3X Shares (MUTE).
TAWK seeks daily investment results equal to 300 percent of the daily performance of the Communication Services Select Sector Index. The index includes domestic companies from the communication services sector, which includes the following industries: diversified telecommunications services, wireless communication services, media, entertainment, and etc.
With the transparency and liquidity of an ETF wrapper that incorporates multiple hedge fund strategies, funds like TAWK opens up the arena to all types of investors irrespective of net worth. In addition, the communications sector can be used as a defensive maneuver amid the coronavirus outbreak, making TAWK a good option that’s not relegated to just leverage-hungry traders.
MUTE follows the same index but provides traders with inverse exposure–also with 3x leverage. If the communications sector does suffer from bumps and bruises during the helter-skelter of the first quarter, this inverse option could serve traders well.
“How long it might take to exit the crisis is anyone’s guess at this time,” the Benzinga report said. “Until then, many analysts are bracing for lackluster results, even from Communication Services components, but remain very interested in any forward guidance—or simply executives’ thoughts.”
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