Talk of rising Treasury yields and inflation is increasing in the capital markets, which is causing some investors to fret. Traders looking for an opportunity can try the Direxion Daily Financial Bull 3X ETF (FAS), which is up 35% year-to-date.
FAS seeks daily investment results that equal 300% of the daily performance of the Russell 1000® Financial Services Index. The fund invests at least 80% of its net assets in financial instruments and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
The index is a subset of the Russell 1000® Index that measures the performance of the securities classified in the financial services sector of the large-capitalization U.S. equity market. The financial sector has been on a tear since the tail end of last year, feeding into a gain of over 110% for FAS.
Rising Yields Are Great for Bank Profits
Rising yields can pave the way for rising interest rates, which help bank profits with revenue from loan products. The Federal Reserve will obviously play a major hand in deciding the direction of rates in the coming months as more stimulus measures get implemented amid the pandemic.
“I think it’s reflective of economic conditions, which is why other financial assets, like equities, aren’t taking it too badly,” said Jim Caron, head of global macro strategy at Morgan Stanley Investment Management.
“The thing is you ain’t seen nothing yet,” he said. “That’s with a $600 stimulus check. What about with a $1,400 stimulus check in hand?”
Consumer expenditures can help move the needle on inflation and thus buck the Fed off its steadfastness when it comes to keeping rates in check. In the meantime, rates are still historically low, which should keep consumers interested in loan products like mortgages.
“You can take your pick whether it’s [the yield]going up with the stimulus or the economy and now the stimulus is actually impacting the economy. We’ve got stimulus already done which is making people spend, and stimulus to come which will spur more spending,” said Michael Schumacher, head of rate strategy at Wells Fargo Securities. “Inflation has been a talking point for the last few weeks.”
Higher rates are all well and good for FAS, which is tracking almost thrice as much as the S&P 500 Consumer Finance index.
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