The Federal Reserve raised the benchmark interest rate by 75 basis points last month for the third consecutive time after August’s consumer price index (CPI) increased higher than expected. The fifth-straight hike this year to the federal funds rate brings it to a range of 3% to 3.25%, the highest since 2008. The Fed’s new projections show the key rate to end this year at 4.25-4.5% and end 2023 at 4.5%-4.75%.
Moreover, the higher-than-expected employment data and hotter-than-expected CPI for September would keep the Fed on track to approve an aggressive rate hike in its November meeting. Overall, the lingering macro headwinds are increasing the odds of a recession.
The Conference Board’s profitability model predicted a 96% likelihood of a recession in the United States within the next 12 months. Furthermore, the last quarter of 2022 and the first quarter of 2023 are expected to witness negative real GDP growth rates.
Since the current economic uncertainties are expected to keep the stock market under pressure in the near term, we think investors should avoid ETFs Direxion Daily S&P Biotech Bull 3x Shares ETF (LABU), VanEck Gold Miners ETF (GDX), and KraneShares CSI China Internet ETF (KWEB), which might witness a downtrend.
Direxion Daily S&P Biotech Bull 3x Shares ETF (LABU)
Rafferty Asset Management, LLC manages LABU. It invests directly, through derivatives and other funds, in stocks of companies operating across health care, pharmaceuticals, biotechnology, and life sciences sectors. The fund provides daily 3x exposure to the S&P Biotechnology Select Industry Index.
LABU has assets under management of a total of $1 billion. The fund’s expense ratio of 0.96% compares with the category average of 1.02%. The fund’s top holding is Dreyfus Government Cash Management Funds Institutional (DGCXX), which has a 32.38% weighting, followed by Goldman Sachs Trust Financial Square Treasury Instruments Fund Institutional (FTIXX) at 6.39%. It has a total of 156 holdings.
LABU’s fund flows were $263.48 million over the past month and $211.41 million over the past three months. It has a beta of 3.8.
The fund has declined 82.8% year-to-date and 87.4% over the past year to close the last trading session at $6.75. It had a NAV of $6.74 as of October 12, 2022.
LABU’s poor performance is reflected in its POWR Ratings. The ETF has a rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The fund has a grade of F for Trade and Buy & Hold. It has a D grade for Peer. Within the F-rated Leveraged Equities ETFs group, it is ranked #39 among 101 ETFs.
Click here to see all the POWR Ratings of LABU.
VanEck Gold Miners ETF (GDX)
Van Eck Associates Corporation manages GDX. The fund offers investors indirect exposure to precious metals by investing in stocks of companies operating across materials, metals & mining, gold, and silver sectors worldwide.
GDX seeks to track the performance of the NYSE Arca Gold Miners Index by using the full replication technique. With $9.57 billion in AUM, GDX’s top holding is Newmont Corporation (NEM), which has a 13.15% weighting in the fund, followed by Barrick Gold Corporation (GOLD) at 10.54%, and Franco-Nevada Corporation (FNV) at 8.82%. It has a total of 50 holdings.
The fund’s 0.51% expense ratio compares to the category average of 0.48%. It has a beta of…
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