Go Cyclical With These Leveraged ETFs

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The stock market has been hovering around record highs on improving economic conditions. This is easily indicated by the latest bouts of data, which shows that the economy is well recovering and booming. The U.S. GDP grew 6.4% annually in the first quarter, representing the second-strongest increase since 2003 on a rapid pace of vaccination, faster job growth, a new round of stimulus and a reopening economy.

The combination has powered activities across all sectors and categories, resulting in increased consumer spending. Americans are spending on big-ticket items such as vacations and weddings, companies are going on hiring sprees, and the transition to new technologies such as electric vehicles is accelerating. Consumer confidence has been on rise and the Conference Board consumer confidence index jumped to the highest level in April since February 2020. Retail sales also surged the most since May 2020 in March.

Additionally, a healing labor market and upbeat earnings with growing earnings estimates for the next quarters bode well for economic growth. Per the IMF projection, the United States will become the engine of global economy this year with the strongest growth in decades. The agency recently upgraded the U.S. economic growth forecast from 5.1% to 6.4% for this year.

Against such a backdrop, economically sensitive sectors are the biggest beneficiaries. Though reflation trade and the resultant increase in rates will weigh on the growth sectors, cyclical sectors like consumer discretionary, industrials, financials and energy will continue to see an uptrend as long as the economy improves. Further, the stocks in this sector are attractively valued at the current levels compared to the technology stocks, whose valuations rose to lofty levels.

How to Play?

Amid the strong optimism, investors have turned bullish on the cyclical sectors and are seeking to tap this opportunity. For them, a leveraged play on this sector could be an excellent idea as these could see huge gains in a very short time frame compared to the simple products.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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