The High Beta Trade Is On Right Now

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

The broader market indexes have calmed in the last few months, but that doesn’t mean the market is any more certain about the future. On any given day, traders may decide to favor “reopening stocks” only to turn around and buy “stay-at-home” stocks the next day.

Given the yo-yo market traders still find themselves in, it’s not difficult to understand the success of the Direxion Daily S&P 500® High Beta Bull 3X Shares HIBL in what is now the new high-water mark of the market. The ETF, which aims to deliver 300% the daily performance of the The S&P 500 High Beta Index, spent November climbing by roughly 100%.

Hopes Rise for Future Growth

Driving the sharp uptick in HIBL is increased market confidence derived from encouraging COVID-19 vaccine trial results from Pfizer Inc. PFE, Moderna MRNA and a handful of other biotech firms. The results, which have efficacy rates of upward of 95%, have unleashed the market’s animal spirits and buoyed hopes for the long-awaited v-shaped recovery investors have been pining for since the onset of the pandemic.

This hope for a broad-based recovery is apparent in some of the stocks leading HIBL higher through November. These include companies with close ties to overall economic conditions, with financial and insurance firms like Lincoln National LNC higher by 31% in November despite mixed earnings and copper mining outfit Freeport-McMoRan FCX up by 20% on strong earnings and rising spot price on copper, a good signal for construction and overall economic growth.

But while the broad market was certainly encouraged by the news, its impact on this year’s high-beta stocks was even more pronounced given the pandemic’s direct influence on their volatility.

Stocks Rise Along With Infections

Case in point, the hospitality and food service industries, which are a prime example of this phenomenon of hopes for a COVID comeback. Components like Norwegian Cruise Line NCLH Royal Caribbean RCL and Darden Restaurants DRI have gained between 20-30% through November.

Of course, these stocks coming on the back of a summer in which COVID-19 was much less rampant across the world than it currently is, and likely will be, in the coming months in weeks.

The resurgence in COVID-19 may call into question the gains that these high-volatility segments of the market have seen as of late. With earnings season in the rearview, the market may only have the end of the year “Santa Claus rally” to pin their hopes on further gains into the new year.

In that case, traders may want to keep the inversely leveraged Direxion Daily S&P 500® High Beta Bear 3X Shares HIBS in their bag in case the winter brings continued infections and uncertainty about the production, dissemination, and participation in a vaccine.

HIBL as of 09/30/2020

The performance data quoted represents past performance. 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.

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.