Market Overview

Industrials Become Intriguing With This ETF

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Industrials Become Intriguing With This ETF

In the first quarter, the industrial sector, with plenty of help from Boeing (NYSE: BA), was one of the epicenters of cornavirus carnage.

What Happened

Look now because the S&P 500 Industrial Index is up 7.17% over the past week and 13.33% over the past month, providing the right ingredients for big upside in the Direxion Daily Industrials Bull 3X Shares (NYSE: DUSL).

DUSL is designed to deliver triple the daily returns of the Industrial Select Sector Index. DUSL's actually doing better, soaring 23% over the past week and more than 43% over the past month. On Tuesday, the king of leveraged industrial exchange-traded funds jumped 1.53% on volume that was nearly triple the daily average.

Why It's Important

DUSL's redemption story is being helped by more than just Boeing, which is important given the controversial nature of that stock and because it points to broad-based opportunity with the geared ETF.

“This includes industrial stalwarts like Honeywell, which while still red on the year has managed to retain investor confidence thanks to an earnings report early in May that showed the company exceeded bottom-line expectations by generating per-share revenue of $2.10, though it missed slightly in first-quarter sales,” according to Direxion research.

3M (NYSE: MMM), a Dow component like Boeing, is coronavirus play and one that's contributing to DUSL's recent strength.

“A similar picture is developing for 3M, which also reported a solid quarter and has also been at the center of heightened PPE demand for its manufacture of the N95 mask as well as medical gowns and face shields,” notes Direxion.

What's Next

A key point to consider with DUSL is that the industrial sector is intimately tethered to economic data, which has been poor amid the pandemic, but the fund is still rallying against a challenging backdrop.

“The May ISM Manufacturing PMI still shows production demand in a state of contraction, with demand still at 10-year lows, though expectations are for the June reading to rebound to the 45-50 range,” according to Direxion.

Another issue for traders to consider with DUSL is politics. With just over 80 days until Election Day, industrials, the sector where aerospace and defense names, could be adversely affected if markets price in shortening odds of a Democratic sweep come November. That may be a knee jerk reaction because plenty of Democrats represent districts where aerospace jobs are vital, but it would be a headwind for DUSL nonetheless.

 

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