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Heating Up: Three Leveraged ETFs For Summer Earnings

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As the broad market knocks on the door of all-time highs in the midst of a still-raging public health crisis, traders have had to simultaneously ride the bullish wave (in most sectors) while also moderating their expectations for corporate earnings. And although most corporate guidance has attempted to temper the hopes of those looking for an immediate rebound, a fair number of sectors are still riding the enthusiasm for a quick recovery.

The result is that some sector and industry exchange-traded funds (ETFs) are experiencing strong bullish trends through the second-quarter reporting season. Direxion’s stable of leveraged bullish funds is no exception.

For traders looking to gauge the momentum of the leading market segments, we’ve compiled three leveraged ETFs that are at various rallying stages and dissected the major components of each to see how this earnings season might inform the remaining months of 2020.

The Race For The Covid Cure

First up is an industry that many traders have had a keen eye on since the depths of the global pandemic: biotech. And though momentum has cooled significantly over the past month, this still remains one of the top-performing industries of the year.

From May to July, the Direxion Daily S&P Biotech Bull 3X Shares (NYSE: LABU) climbed about 70% to a new 52-week high as research laboratories have raced through clinical trials to find a viable vaccine for COVID-19. Chief among these is Moderna, Inc. (NASDAQ: MRNA), largely considered the leading candidate with its mRNA-1273 in Phase 3 trial period. The company, which reported earnings on August 5, said it had received $400 million in customer deposits as of the end of July for its coronavirus vaccine candidate, and that the Phase 3 study is on track to be completed in September.

Other top performers with a stake in the COVID-19 vaccine race such as Inovio Pharmaceuticals, Inc. (NASDAQ: INO) and Novavax, Inc. (NASDAQ: NVAX) will also be closely linked to incoming trial results. Though both sold off hard on Tuesday, traders will closely be watching for vaccine developments in the coming weeks.

Consumer Shopping Spree Stocks

Another industry riding high on hope, retail stocks are beginning to find some footing in the era of pandemic. That’s at least the indication from the Direxion Daily Retail Bull 3X Shares (NYSE: RETL), which rose 75% from May-July.

While e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN) is among the obvious high-flyers in the segment, much of the recent price action among retailers is taking place in lower-profile names that have been thrust into the spotlight in the midst of the pandemic. This includes the likes of Rite Aid Corporation (NYSE: RAD), which is still riding the momentum of a strong Q1 report, and BJ's Wholesale Club Holdings, Inc. (NYSE: BJ), which received a host of rating upgrades and price target increases following its earnings delivery back in May that saw the wholesale membership store double its consensus bottom-line expectations.

Look for Q2 results the general stores and pharmacies like RAD as well as grocery stores and wholesalers like BJ later in August and into September.

Homebuilders Still NAILing It.

Finally, an industry that has proven extremely resilient through periods of volatility, the Direxion Daily Homebuilders & Supplies Bull 3X Shares (NYSE: NAIL) is up roughly 200% since the start of May thanks to a perfect storm of steady demand for housing, a persistent supply shortage in the U.S. and historically low mortgage rates.

Since homebuilders are generally early to report, second-quarter results from industry tentpoles like Lennar Corporation (NYSE: LEN) and D.R. Horton, Inc. (NYSE: DHI) have already begun rolling in, topping analyst expectations and propelling them to or near all-time highs. The strong results, paired with steady guidance and the array of economic conditions beneficial to the group, compelled Bank of America analysts to raise their price target on most of the major industry players, even among laggards like NVR, Inc. (NYSE: NVR) and KB Home (NYSE: KBH), which are still looking to go green on the year.

While many of the major homebuilders have already delivered their Q2 reports, traders should still keep an eye out for incoming numbers from suppliers like The Home Depot, Inc. (NYSE: HD) and Lowe's Companies, Inc. (NYSE: LOW) on August 18 and 19, respectively. After which they can look forward to Q3 results in late-September.

 

The performance data quoted represents past performance. 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 performance go to direxion.com

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.

These leveraged ETFs seek investment results that are 300% of the return of its benchmark index for a single day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. 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 investment results and intend to actively monitor and manage their investment.

For the funds’ standardized and most recent month end performance click here

LABU as of 7/31/2020

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RETL as of 7/31/2020

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NAIL as of 7/31/2020

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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 866-301-9214 or visit our website at direxioninvestments.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 Funds.

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 Risks: An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry or sector which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. For other risks including leverage, correlation, daily compounding, market volatility and risks specific to an industry or sector, please read the prospectus.

Distributor: Foreside Fund Services, LLC

 

 

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Posted-In: Biotech Earnings Long Ideas Sector ETFs Short Ideas Specialty ETFs Markets Trading Ideas