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.
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 /zigman2/quotes/201714904/composite LABU +0.06% 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. /zigman2/quotes/205619834/composite MRNA +1.55% , 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. /zigman2/quotes/202993817/composite INO -28.34% and Novavax, Inc. /zigman2/quotes/202614340/composite NVAX -2.10% 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.
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 /zigman2/quotes/202341669/composite RETL +7.04% , which rose 75% from May-July.
While e-commerce giant Amazon.com, Inc. /zigman2/quotes/210331248/composite AMZN +2.55% 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 /zigman2/quotes/201733831/composite RAD -2.20% , which is still riding the momentum of a strong Q1 report, and BJ's Wholesale Club Holdings, Inc. /zigman2/quotes/203668982/composite BJ -0.37% , 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.
Finally, an industry that has proven extremely resilient through periods of volatility, the Direxion Daily Homebuilders & Supplies Bull 3X Shares /zigman2/quotes/207003579/composite NAIL +11.13% 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 /zigman2/quotes/202536373/composite LEN +3.83% and D.R. Horton, Inc. /zigman2/quotes/202032328/composite DHI +3.70% 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. /zigman2/quotes/209548385/composite NVR +3.77% and KB Home /zigman2/quotes/206220859/composite KBH +6.15% , 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. /zigman2/quotes/208081807/composite HD +1.41% and Lowe's Companies, Inc. /zigman2/quotes/205563664/composite LOW +1.91% 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.