Will Weak Retail Sales Keep ETF Bulls At Bay?

Bulls at Wall Street were surprisingly hit by the latest batch of economic data, which shows the biggest 1.2% drop in December retail sales in more than nine years. Retail sales growth for November were also revised downward to up 0.1% from 0.2% as previously reported. This reflects a sharp slowdown in economic activity at the end of 2018 and renewed fears of recession.

The downbeat numbers came on the heels of a stock market meltdown, drop in consumer spending and the impact of the longest government shutdown. The decline was broad-based, with online and mail-order retail sales falling 3.9% — the biggest drop since November 2008 —and receipts at service stations diving 5.1% — the biggest fall since February 2016, according to the Commerce Department’s four-week delayed data due to the shutdown (read: ETF Winners & Losers in One-Month Long Government Shutdown).

Sales at hobby, musical instrument and book stores plunged 4.9%, marking the biggest drop since September 2008. Sales at clothing and furniture stores as well as spending at restaurants and bars also declined. Auto dealers and building materials stores were the only sectors to record increase in retail sales.

The disappointing retail sales data has come when consumer sentiment is declining. This is especially true as the University of Michigan consumer sentiment index tumbled in early January to its lowest level since President Donald Trump was elected more than two years ago. The consumer sentiment data failed to keep the bulls at bay as this seems to be a temporary impact of trade war and partial government shutdown (read: Wall Street Caps Best Month in Decades: 6 Top Leveraged ETFs).

Moreover, politics, which has long been resulting in market volatility, is now moving along a positive path with new developments in U.S.-China trade talks and a new deal to avoid another government shutdown. In the latest step, President Donald Trump signaled he might extend the deadline on the U.S.-China trade war ceasefire. The combination will help in boosting investor sentiment. Additionally, the Fed’s patient approach related to rate hikes, stabilizing oil prices as well as hopes of further stimulus in China are adding to the strength in the stock market.

Given the positive improvement on the political side, investors should buy the dip. The worst drop in retail sales in nine years could create some panic in the stock market but can’t keep the bulls away for long. As such, we have highlighted six outperforming ETFs from a year-to-date look that have legs at least for the near term.

Direxion Daily Aerospace & Defense Bull 3X Shares DFEN – Up 60.7%

The fund creates a three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in good average daily volume of more than 70,000 shares. The fund has accumulated AUM of $67 million.

Direxion Daily Regional Banks Bull 3x Shares DPST – Up 60.4%

This fund seeks to deliver three times the returns of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. It has accumulated $33.3 million in its asset base and trades in average daily volume of around 46,000 shares a day on average (read: 9 Leveraged ETFs That Soared More Than 25% to Start 2019).

Direxion Daily S&P Biotech Bull 3x Shares LABU – Up 56.3%

This fund creates a 3x leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in heavy average daily volume of about 3.2 million shares. The fund has AUM of $593.1 million.

Direxion Daily Industrials Bull 3X Shares DUSL – Up 55.3%

This fund offers three times exposure to the daily performance of the Industrial Select Sector Index. It has accumulated $6.1 million in its asset base and the average daily volume is paltry at around 10,000 shares. Expense ratio comes in at 0.95%.

Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL – Up 53.3%

NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in lower average daily volume of about 58,000 shares. The fund has accumulated $33.3 million in its asset base.

Direxion Daily Semiconductor Bull 3x Shares SOXL – Up 49.8%

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $601 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges nearly 874,000 shares a day on average (read: 6 Leveraged ETFs to Play Trade, Oil and Shutdown Hopes).

Caveat!

While the bullish ETFs are highly beneficial for short-term traders seeking to register big gains in a short span, it could lead to huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect.

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