Leveraged/Inverse ETFs That Gained Double-Digits Last Week

Last week was an eventful one characterized by a massive attack on Saudi oil, tension in the Middle East, a rate cut, and pessimism over U.S.-China trade talks.

Events Recap

A drone strike at the heart of Saudi Arabia’s oil production facilities in Abqaiq and Khurais led to the historic one-day gain in oil price and thus propelled energy sector. Secretary of State Michael Pompeo blamed Iran for the disruption while the allegation was rejected by Tehran. President Donald Trump said the United States is “locked and loaded depending on verification” that Iran staged the attack, raising the specter of a military response. Any retaliatory action against Iran would escalate tensions between the two countries.

Meanwhile, the Federal Reserve slashed interest rates for the second time since the financial crisis by 25 bps to 1.75-2% in its policy meeting to sustain the decade-long economic expansion (read: Sector ETFs, Stocks Set to Explode After Another Rate Cut).

The stock rally faded as Chinese trade delegation canceled visits to farms in Montana and Nebraska dampening optimism in trade talks. U.S. President Donald Trump said he wanted a complete trade deal, not just an agreement for China to buy more U.S. agricultural goods.

Leveraged/Inverse ETFs Riding High

Against this backdrop, investors rushed to leveraged or inverse leveraged ETFs to increase returns on the quick market turns in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts, and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend.

However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Still, we have highlighted some leveraged/inverse ETF that piled up more than 10% last week though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term provided the sentiments remain the same.

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