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The U.S. stock market wrapped up April with losses, snapping a five-month winning streak and marking the market’s worst month of 2024. The Dow Jones declined 5%, its worst monthly performance since September 2022. The S&P 500 slid about 4.2% and the Nasdaq lost 4.4%. Both indices logged their first monthly decline since October and their worst monthly return since September. Investors should note that eight of the S&P 500’s 11 sectors recorded their biggest monthly percentage decline.

Growing inflation worries, delays in Fed rate cuts and escalating geopolitical tension continued to weigh on investor sentiments. Additionally, the bouts of recent data showed that the economy is cooling down. 10-year Treasury yields also climbed 49.1 bps in April, representing the largest monthly jump since September 2022, according to Dow Jones Market Data.

This has resulted in huge gains for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. We have highlighted the five best-leveraged inverse ETFs that piled up handsome gains of more than 20% last month amid the market turmoil. These include Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report), Direxion Daily MSCI Real Estate Bear 3X Shares (DRV - Free Report), MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report), Direxion Daily Small Cap Bear 3x Shares (TZA - Free Report), and MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report).

These products either create a short position or a leveraged short position in the underlying index through swaps, options, futures contracts, and other financial instruments.
 

Weak Market Trends

The world's biggest economy emerged weaker at the start of 2024 due to lower consumer and government spending amid growing inflation. The economy expanded at the slowest pace in two years, with GDP rising 1.6% annually in the first quarter, missing Wall Street expectations of a 2.4% increase. The growth reflects a clear slowdown from the 3.4% increase in the fourth quarter of 2023, which was the weakest growth rate since mid-2022 and was also much lower than 4.9% reported in the year-ago quarter.

The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (“PCE”) price index, grew at an annualized rate of 3.4% in the first quarter, nearly double the 1.8% pace logged during the fourth quarter. The GDP data, showing the combination of slower growth and sticky inflation, provides the backdrop for stagflation. While a slowdown in economic growth calls for the easing of interest rates, hotter inflation has put a limit on the Fed’s ability to take action.

The central bank signaled that persistently elevated inflation will likely delay any interest rate cuts until later this year, opening the door for a period of higher-for-longer rates. Higher interest rates will continue to keep borrowing costs up, thereby resulting in lower consumer spending and a decline in economic activities. Further, the tensions in the Middle East have intensified, heightening fears of a wider conflict in the volatile region.

U.S. consumer confidence has also been declining, reflecting ongoing concerns among Americans about their near-term financial situations amid persistently high prices and interest rates. Consumer confidence in April, per the Conference Board, declined for the third consecutive month and hit the lowest level since July 2022.

However, the continued expansion in AI applications will continue to fuel the stocks higher. Many experts believe that the AI journey for market leaders has just begun, and more innovations in this field will unfold.

ETFs in Focus

Direxion Daily S&P Biotech Bear 3x Shares – Up 38%

Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry. Direxion Daily S&P Biotech Bear 3x Shares has amassed $91.4 million in its asset base and has an average daily volume of around 16 million shares. It charges investors 95 bps in annual fees.

Direxion Daily MSCI Real Estate Bear 3X Shares – Up 29.8%

Direxion Daily MSCI Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of Real Estate Select Sector Index. It has AUM of $110.4 million and an average daily volume of around 217,000 shares. Direxion Daily MSCI Real Estate Bear 3X Shares charges 95 bps in fees per year.

MicroSectors Travel -3x Inverse Leveraged ETN – Up 26.9%

MicroSectors Travel -3x Inverse Leveraged ETN offers three times inverse exposure to the performance of the MerQube MicroSectors U.S. Travel Index, which measures the performance of large, liquid U.S. listed and domiciled companies operating in the RBICS Sub Industries related to travel and tourism. It has gathered $2.1 million in its asset base. MicroSectors Travel -3x Inverse Leveraged ETN charges 95 bps in fees per year and trades in an average daily volume of 1,000 shares.

Direxion Daily Small Cap Bear 3x Shares – Up 23.8%

Direxion Daily Small Cap Bear 3x Shares provides three times inverse exposure to the Russell 2000 Index, charging 90 bps in fees and expenses. It has been able to manage $337.1 million in its asset base with a heavy average daily volume of 21 million shares.
    
MAX Auto Industry -3x Inverse Leveraged ETN – Up 22.8%

MAX Auto Industry -3x Inverse Leveraged ETN seeks to offer three times inverse exposure to the daily performance of the Prime Auto Industry Index. It charges 95 bps in annual fees and has accumulated $2.7 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 500 shares.

Bottom Line

While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating markets (see: all the Inverse Equity ETFs here).

Still, for ETF investors who are bearish on equities for the near term, either of the above products could make an interesting choice. These could be attractive for those with high-risk tolerance and who believe that the “trend is the friend” in this specific corner of the investing world.

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