Market Overview

For Now, Divided Government Puts Spotlight On Leveraged Internet ETFs

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It's clear former Vice President Joe Biden will be the 46th president of the United States, but the blue wave so many pollsters and prognosticators predicted didn't materialize and that could be good news for some corners of financial markets.

What Happened

The Direxion Daily Dow Jones Internet Bull 3X Shares (NYSE: WEBL) and its inverse counterpart, the Direxion Daily Dow Jones Internet Bear 3X Shares (NYSE: WEBS), stand as examples of leveraged exchange traded funds that could be in focus due to the recent electoral outcomes.

The bullish WEBL attempts to deliver triple the daily returns of the widely followed Dow Jones Internet Index while the bearish WEBS looks to replicate triple the daily inverse returns of that benchmark.

Why It's Important

Leading up to Election Day, Alphabet (NASDAQ: GOOG), as just one example, was under intense political scrutiny. Some Republicans believe the internet search giant plays an active role in influencing discourse in this country by favoring left-leaning content. Some Democrats see the company as a monopoly primed for trust busting. Oh yeah, the Department of Justice (DoJ) is suing the company.

“The lawsuit alleges the company has engaged in monopolistic practices through the dominance of its advertising and search engine policies, forcing advertisers and users to accept onerous terms in order to engage its properties,” according to Direxion. “Of course, Google contends that this is a natural extension of its innovation and acquisitions. Consumers and businesses prefer their platform, anyone who doesn’t like playing by their rules can take their business elsewhere.”

What could make appealing the bullish WEBL appealing over the near-term is the Biden/Harris Administration isn't likely to take a harsh tone toward Silicon Valley, particularly given the vice president-elect's many supporter's there. Additionally, without control of the Senate, Democrats willing to rake Google over the coals may lack the ammunition to do so.

What's Next

For those wanting to back the bearish WEBS, regulatory scrutiny is probably here to stay for internet titans like Google. Whether that proves beneficial to WEBS, just a few months removed from a reverse split, is another matter.

“Can virtual properties be allowed to grow unabated if it means vital and necessary services are in the control of just a single monolithic corporation? Should a handful of tech designers control the way the world thinks, acts, and votes,” notes Direxion. “There are, unfortunately, no simple answers to the questions posed by the current state of the internet. It’s obviously something larger and less clear cut than anyone with the reigns of power had considered it to be just 10 or 20 years ago.”

 

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