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The month of August was volatile for the U.S. stock market. After witnessing a steep sell-off at the start of the month, the major bourses recovered strongly, with the Dow Jones touching a series of new highs last week. The blue-chip index rose 1.8% last month. The S&P 500 marked its fourth straight winning month, rising 2.3%, and the tech-heavy Nasdaq Composite Index logged 0.7% growth despite investors losing faith in the technology sector.

Notably, consumer staples, real estate, and healthcare helped lift the broad market index in August.

Here, we have highlighted a bunch of the best-performing leveraged equity ETFs that grew in double digits in August. These include Direxion Daily Utilities Bull 3X Shares (UTSL), Direxion Daily Financial Bull 3X Shares (FAS - Free Report), Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN), Direxion Daily Healthcare Bull 3X Shares (CURE - Free Report) and MicroSectors Gold 3X Leveraged ETN (SHNY). These funds seek to register big gains in a short span and are expected to continue the strong trend, at least in the near term, provided the sentiments remain bullish.

Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as the use of swaps, futures contracts and other derivative instruments, to accomplish their objectives.

A disappointing July job report raised concerns about the U.S. economy's health at the start of August, making investors unwind their bets on tech giants and other growth-oriented sectors. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase.

However, sentiments started to improve on bouts of solid economic data and bets over the Fed rate cuts in September. The upbeat data on inflation and retail sales reassured investors, supporting the view that the world’s largest economy is heading for a “Goldilocks” scenario of contained inflation accompanied by resilient growth. U.S. annual inflation dipped below 3% in July for the first time since 2021, while retail sales registered the most significant increase in a year and a half, indicating resilient consumer spending.
    
Federal Reserve Chair Jerome Powell signaled that interest rate cuts are coming in September, citing easing inflation and a weakening job market. At the latest Jackson Hole symposium, Powell said “the time has come” to lower borrowing costs in the light of a diminishing upside risk to inflation and moderating labor demand. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” he added.

The probability of a 25-bps rate cut stands at 69.5%, whereas that of a 50-bps cut is at 30.5%, according to the latest CME Group's FedWatch tool. Lower interest rates generally lead to reduced borrowing costs, which help businesses expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and provides a boost to the stock market.

ETFs in Focus
 

Direxion Daily Utilities Bull 3X Shares – Up 19.4%

With an AUM of $43.7 million, Direxion Daily Utilities Bull 3X Shares offers three times exposure to the performance of the Utilities Select Sector Index. It charges investors an annual fee of 95 bps and trades in a lower average daily volume of 189,000 shares.

Direxion Daily Financial Bull 3x Shares – Up 15%

Direxion Daily Financial Bull 3x Shares seeks to make a large profit from the bullish trend in the financial sector. It provides three times exposure to the performance of the Financial Select Sector Index. Direxion Daily Financial Bull 3x Shares has amassed $2.5 billion in its asset base while trading in a volume of 705,000 shares. It charges 90 bps in annual fees.

Direxion Daily Aerospace & Defense Bull 3X Shares – Up 13.2%

Direxion Daily Aerospace & Defense Bull 3X Shares creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 97 bps and trades in a good average daily volume of about 214,000 shares. Direxion Daily Aerospace & Defense Bull 3X Shares has amassed an AUM of $188.8 million in its asset base.

Direxion Daily Healthcare Bull 3X Shares – Up 12.9%

Direxion Daily Healthcare Bull 3X Shares creates a three times leveraged long position in the Health Care Select Sector Index. It charges 96 bps in fees a year. Direxion Daily Healthcare Bull 3X Shares has $214.6 million in AUM and trades in volumes of 31,000 shares on average.

MicroSectors Gold 3X Leveraged ETN – Up 12.4%

MicroSectors Gold 3X Leveraged ETN is linked to a three times leveraged participation in the performance of the SPDR Gold Trust (GLD). It charges 95 bps in annual fees and trades in an average daily volume of about 20,000 shares. SHNY has accumulated $20.2 million in its asset base.

Bottom Line
 

As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures.

For ETF investors bullish on these sectors for the near term, either of the abovementioned products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high risk tolerance and a belief that the trend is the friend in this corner of the investing world.

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