Earnings Season Beckons For Leveraged ETFs

Second-quarter earnings is about to commence and the arrival of another earnings seasons brings opportunity for tactical traders to tap leveraged exchange traded funds (ETFs).

“Fom the end of the quarter through the end of the earnings season, the earnings growth rate has typically increased by 3.2 percentage points on average (over the past five years) due to the number and magnitude of upside earnings surprises.” said FactSet. “If this average increase is applied to the estimated earnings growth rate at the end of Q2 (June 30) of 20 percent, the actual earnings growth rate for the quarter would be 23.2 percent.

What Happened

At the sector level, financial services, the second-largest sector weight in the S&P 500, gets the earnings ball rolling every quarter. Year-to-date, the sector is disappointing despite rising interest rates and a more favorable earnings environment.

If the sector's earnings are viewed as disappointing, hint of which will be revealed as soon as July 13^th, short-term traders may want to consider the Direxion Daily Financial Bear 3X Shares FAZ. FAZ attempts to deliver triple the daily inverse returns of the Russell 1000 Financial Services Index.

From July 13^th through July 18^th, eight of the top 10 holdings in that index report earnings. Three of those companies step into the earnings confessional on Friday, July 13^th.

Why It's Important

“Finance sector earnings are expected to be up +18.2 percent from the same period last year on +3.4 percent higher revenues,” said Direxion. “For full-year 2018, total earnings for the S&P 500 index are expected to be up +19.9 percent on +6.1 percent higher revenues.”

One sector that is expected to deliver some notable earnings increases is energy. If that trend materializes, aggressive traders can evaluate the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares GUSH, among other leveraged fare.

GUSH seeks to deliver triple the daily returns of the S&P Oil & Gas Exploration & Production Select Industry Index.

What's Next

“Q2 estimates moved up modestly since the quarter got underway, but the positive revisions were primarily because of the Energy sector,” according to Direxion.

The top 10 components in GUSH's underlying index start delivering results late this month and into the first week of August.

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