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An Opportunity To Leverage Volatility In Unexpected Industries

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An Opportunity To Leverage Volatility In Unexpected Industries

Given the momentum of the previous 12 months and the fact that the threat of COVID-19 has seemingly begun to recede in many parts of the world, including the U.S., traders may have been hoping 2021 would see continued high growth throughout the broad market.

Unfortunately, the stock market is not so straightforward and has instead spent the second half of February into March making massive percentage swings of as much as +/-3.5%.

While the heightened volatility has disrupted the pattern of broad-based strength among the market’s major sectors, it has increased the appeal of stocks and industries that thrive in tumultuous markets. Throughout February, the S&P 500 High Beta Index (SP5HBIT) has climbed by nearly 12% on the back of unexpected growth among the more hard-hit industries through the pandemic

Taking a look at the recent performance of the Direxion Daily S&P 500 High Beta Bull 3X Shares (NYSE: HIBL), which tracks the daily performance of S&P index, this growth has pushed the ETF higher by 70% since the start of February, putting the fund at a new all-time high. Again, much of this recent performance can be pegged to the unaddressed recovery of typically volatile stocks that are just now finding some traction after lagging through much of 2020 as a result of the pandemic.

Travel Season Helps Stocks Take Off

Among the prime movers in the high-beta segment are the constituents that thrive on people moving around, which has been a particularly difficult theme in the time of a global pandemic.

However, as new cases drop and more people get vaccinated, restrictions on movement and capacity within the hospitality industry have already prompted an uptick in travel as airliners begin seeing a modest uptick in ticket sales. This comes just as the spring and summer months begin to set in and people’s minds turn to vacation after months of privation.

This encouraging trend has helped renew interest in flagging travel and hospitality stocks like United Airlines Holdings, Inc. (NASDAQ: UAL), American Airlines Group Inc. (NASDAQ: AAL) and cruiseliners Carnival Corporation & plc (NYSE: CCL) and Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH), each of which finds itself at or approaching a new 52-week high.

While the earnings trend among all of these companies is still lagging where they were a year ago, the losses have seemingly stabilized into 2021 and traders seem content to speculate on a robust travel season, particularly in light of the steep discount many of these stocks are running at.

Money and Oil Are Also Prime Movers

In addition to the resurgence of pandemic-afflicted stocks, key industries finance and energy are also seeing a spike in interest as the macro economy recalibrates following the previous 12 months. Both energy and financial markets entered unprecedented environments through the depth of the pandemic, and now both are beginning to recalibrate from their respective breaks from the norm.

In the case of energy markets, the newfound control many nations has been able to exercise against the pandemic, as well as production cuts among OPEC nations and the U.S., has helped reduce some of the excess oil that the world has built up for the better part of the past two years. This, in turn, has boosted crude prices above the critical $60 a barrel level and generally increased the profit margins of the world’s major energy concerns like Occidental Petroleum Corporation (NYSE: OXY) Halliburton Company (NYSE: HAL) and Marathon Oil Corporation (NYSE: MRO).

Similarly, banks and financial institutions have seen an uptick in share price thanks to the increased economic activity, both real and anticipated, from the pandemic’s gradual end. Not only did many of these large institutions, like Wells Fargo & Company (NYS:WFC) and Morgan Stanley (NYSE: MS), enter the year reporting encouraging Q4 financial results from their brokerage activities, but many investors are also hedging their investments into the financial realm due to the renewed risk of inflation and the possibility of increased interest rates from the current, near-zero, levels they are currently at.

The Return to Normal Could Be Anything But

Altogether, the market may be in for some surprising developments in the coming weeks and months as traders attempt to navigate the rapid and unpredictable changes that have resulted from a year of strange yet somewhat predictable economic activity.

While the pandemic is tragic and trying for the entire world, the months of transition that will follow may end up being similarly difficult to anticipate as some industries make a comeback, as we are seeing in the travel and hospitality space, while others, like tech and online stocks, reckon with high valuations and diminished growth potential.

In any case, it promises to be an interesting few months on Wall Street, and traders shouldn’t count out the potential for more surprises among the market’s more volatile sectors.


Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For the most recent month end and standardized performance click here

Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.

Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment.

HIBL as of 12/31/2021

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Market Disruptions Resulting from COVID-19. The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.

Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

Direxion Shares ETF Risks – Investing involves risk including possible loss of principal. There is no guarantee the investment strategy will be successful. The value of stocks of information technology companies and companies that rely heavily on innovation and technology are particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from competitors with lower production costs. Innovative technology companies may struggle to capitalize on new technology or may face competition and obsolescence. Additional risks of the Fund include, but are not limited to, Index Correlation/Tracking Risk, Index Strategy Risk, Market Disruption Risk, and risks associated with the market capitalizations of the securities in which the Fund may invest. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
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