Leveraged ETFs In Trump's First 100 Days

Saturday marks President Donald Trump's 100th day in office. And while the country remains divided over his actions, it cannot be refuted that U.S. equities have performed well since Trump was sworn in on January 20th. Since Trump took the oath of office two of the most popular large-cap indexes, the S&P 500 and NASDAQ 100, are up about 5.7 percent and 10 percent respectively.

Predictably, some leveraged exchange-traded funds are enjoying their seats on the Trump train. The Direxion Daily S&P 500 Bull 3X Shares (NYSE:SPXL) has returned about 15 percent since Inauguration Day. As its name implies, SPXL is designed to deliver triple the daily returns of the S&P 500 Index. SPXL has a bearish counterpart, the Direxion Daily S&P 500 Bear 3X Shares (NYSE:SPXS),which which is down about the same amount over Trump's first 100 days in office.

While SPXL's recent performance is undoubtedly compelling, traders should remember that holding leveraged ETFs for weeks or months on end is a dangerous bet because ETFs such as SPXL and SPXS are designed to be intraday instruments, not long-term investments.

While large-cap US. stocks and their related exchange traded funds have been solid performers this year, things aren't quite the same for the small-caps.

Small-Cap Performance

Small-caps stocks and ETFs recently regained some lost momentum, ascending to record highs. That has been good news for the Direxion Daily Small-Cap 3X Bull Shares (NSYE: TNA). TNA, one of the most heavily traded leveraged small-cap ETFs, seeks to deliver triple the daily returns of the widely followed Russell 2000 Index.

However, TNA's bearish counterpart, the Direxion Daily 3X Bear Shares(NYSE:TZA), could soon get its turn in the spotlight as small-cap valuations climb to multi-year highs. TZA attempts to deliver triple the daily inverse returns of the Russell 2000.

On forward P/E, small caps and mid-caps currently trade at the 98th percentile of their historical valuation range (since 1979) vs. the 87th percentile for large caps, said Bank of America Merrill Lynch in a note out Friday. Given that small caps now trade at Tech Bubble-like valuations in our view it does not bode well for future long-term returns.

Since January 20 TNA is up 10 percent, while TZA is down 14 percent.

Mid-Cap Performance

Mid-caps have been decent performers over Trump's first 100 days in office. For example, the Direxion Daily Mid Cap Bull 3X Shares (NYSE:MIDU) is up about 11 percent. MIDU seeks to deliver triple the daily returns of the widely followed S&P MidCap 400 Index (which has had a relatively strong 2017 in line with the rest of the market).

Its bearish counterpart on the other hand, the Direxion Daily Mid Cap Bear 3X Shares (NYSE:MIDZ) is down about 13 percent.

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