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Santa Claus Rally? Depends On Your Trade.

December 18, 2020

Editor’s note: Any and all references to timeframes longer than one trading day are for purposes of market context only, and not recommendations of any holding timeframe. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged ETFs are not for you.

After an unprecedented year of dramatic highs and lows, the S&P 500 has made a decisive upward move of about 11% since the beginning of November, hitting a high water mark nearly 6% over its previous all-time high.

The November surge represents one of the market’s steepest monthly increases in a year characterized by precipitous price moves. It also means the market is entering 2021 at its highest relative price in recent history, dwarfing 2019 when the market was entering its final month above its all-time high by about 4%.

The rapid price move has some market commentators softening expectations for a potential of an expected end-of-year “Santa Claus rally.”

It’s a perspective that may hold water when compared to previous years. Remember, in 2018 the market rallied more than 6% in the final days of the year after selling off for much of the quarter. Compare that to 2019 when the S&P 500 experienced a more modest 2.7% rise through December, matching its pace through November.

Retail Rises On Holiday Sales

Among the ETFs leading the end-of-year charge is the Direxion Daily Retail Bull 3x Shares (RETL), which is higher by about 8.5% in the initial days of December.

Source: Bloomberg. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For standardized and month-end performance click here.

The momentum can largely be chalked up to news of record sales of more than $9 billion for online retailers heading into the holiday season, even while brick and mortar retailers struggle. The increased figures have helped propel investor interest in major constituents with online storefronts like eBay, L Brands and Etsy.

The retail industry’s end-of-year equity growth is further supported through strong earnings trends prior to the holidays. Couple all of this with the fact that consumer spending trends are outpacing 2019, it’s likely that these fundamental trends will be well-supported into 2021

Small Caps Play Big

Another segment outpacing the broad market end-of-year is the small cap contingent, with the Direxion Daily Small Cap Bull 3X Shares (TNA) gaining more than 15% over the first weeks of December. And while sales and fundamentals is what has driven RETL higher, TNA is seeing its added momentum as a result of being largely neglected through 2020 in favor of its large cap counterparts.

Source: Bloomberg. Past performance does not guarantee future results. For standardized and month-end performance click here.

The market’s newfound love of small caps over large caps of course flies in the face of the past decade. With the S&P 500 hitting new all-time highs amid a still uncertain global economic environment, traders are looking to small caps as a potential growth segment. This is borne out through fund flow data through November, which shows traders cycling into high-yield small cap ETFs as large cap funds digest the progress that’s already been made.

A Merry Time Oil Explorers

Last but not least, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH) has staged a convincing 35% rally since the start of December, with major constituents like Devon Energy Corporation and Diamondback Energy climbing to six-month highs.

Source: Bloomberg. Past performance does not guarantee future results. For standardized and month-end performance click here.

The rise can be chalked up to a similarly impressive and unexpected surge in oil prices. Since November, spot prices for Brent and WTI Crude oil have charted an upward trajectory of roughly 25% that has now put the commodities at levels they haven’t seen since March.

This progress, in turn is largely attributed to optimism surrounding the distribution of the COVID-19 vaccine, which speculators hope will increase travel in coming months and put some pressure on commercial oil prices as vaccinated consumers venture again from their homes after a full year of widespread social distancing.

High Hopes for 2021

In total, the broad trend in the market is still one of optimism. And while enthusiasm in broad indicators like the S&P 500 might reveal some caution as traders close the books on 2020, the progress made among the three funds listed above reveals a strong sense that the New Year will bring new gains.

Whether or not this anticipation bears out is yet to be seen. However, with just days to go before 2021, the market seems eager to put an optimistic foot forward.

There’s only one thing that’s certain as we turn the page to 2021. Whether you’re a bull or a bear, Direxion is with you. Our leveraged ETFs are powerful tools built to help you:

  • Magnify your short-term perspective with daily 2X and 3X leverage
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade; and
  • Stay agile – with liquidity to trade through rapidly changing markets

These leveraged ETFs seek a return that is 300%  or 200% or -300% or -200%  of the return of their benchmark index for a single day. The funds should not be expected to provide two or three times or negative two or three times the return of the benchmark’s cumulative return for periods greater than a day.  There is no guarantee the funds will achieve their investment objective.

Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at A Fund’s prospectus and summary prospectus should be read carefully before investing.

Market Disruptions Resulting from COVID-19:  The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.

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Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Market Disruption Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in micro-cap, small- and/or mid-capitalization securities. Investing in micro-capitalization companies are significantly more volatile as they face greater risk of business failure than companies considered small and/or mid-capitalization companies. Investing in small and/or mid-capitalization securities involves greater risks and the possibility of greater price volatility than investing in larger, more-established companies. Additional risks include, for the Direxion Daily Small Cap Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Small Cap Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk, and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

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