An Opportunity To Leverage Volatility In Unexpected Industries

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.

Given the momentum of the previous 12 months and the fact that the threat of COVID-19 has seemingly begun to recede in many parts of the world, including the U.S., traders may have been hoping 2021 would see continued high growth throughout the broad market.

Unfortunately, the stock market is not so straightforward and has instead spent the second half of February into March making massive percentage swings of as much as +/-3.5%.

While the heightened volatility has disrupted the pattern of broad-based strength among the market’s major sectors, it has increased the appeal of stocks and industries that thrive in tumultuous markets. Throughout February, the S&P 500 High Beta Index (SP5HBIT) has climbed by nearly 12% on the back of unexpected growth among the more hard-hit industries through the pandemic

Taking a look at the recent performance of the Direxion Daily S&P 500 High Beta Bull 3X Shares HIBL, which tracks the daily performance of S&P index, this growth has pushed the ETF higher by 70% since the start of February, putting the fund at a new all-time high. Again, much of this recent performance can be pegged to the unaddressed recovery of typically volatile stocks that are just now finding some traction after lagging through much of 2020 as a result of the pandemic.

Travel Season Helps Stocks Take Off

Among the prime movers in the high-beta segment are the constituents that thrive on people moving around, which has been a particularly difficult theme in the time of a global pandemic.

However, as new cases drop and more people get vaccinated, restrictions on movement and capacity within the hospitality industry have already prompted an uptick in travel as airliners begin seeing a modest uptick in ticket sales. This comes just as the spring and summer months begin to set in and people’s minds turn to vacation after months of privation.

This encouraging trend has helped renew interest in flagging travel and hospitality stocks like United Airlines Holdings, Inc. UAL, American Airlines Group Inc. AAL and cruiseliners Carnival Corporation & plc CCL and Norwegian Cruise Line Holdings Ltd. NCLH, each of which finds itself at or approaching a new 52-week high.

While the earnings trend among all of these companies is still lagging where they were a year ago, the losses have seemingly stabilized into 2021 and traders seem content to speculate on a robust travel season, particularly in light of the steep discount many of these stocks are running at.

Money and Oil Are Also Prime Movers

In addition to the resurgence of pandemic-afflicted stocks, key industries finance and energy are also seeing a spike in interest as the macro economy recalibrates following the previous 12 months. Both energy and financial markets entered unprecedented environments through the depth of the pandemic, and now both are beginning to recalibrate from their respective breaks from the norm.

In the case of energy markets, the newfound control many nations has been able to exercise against the pandemic, as well as production cuts among OPEC nations and the U.S., has helped reduce some of the excess oil that the world has built up for the better part of the past two years. This, in turn, has boosted crude prices above the critical $60 a barrel level and generally increased the profit margins of the world’s major energy concerns like Occidental Petroleum Corporation OXY Halliburton Company HAL and Marathon Oil Corporation MRO.

Similarly, banks and financial institutions have seen an uptick in share price thanks to the increased economic activity, both real and anticipated, from the pandemic’s gradual end. Not only did many of these large institutions, like Wells Fargo & Company WFC and Morgan Stanley MS, enter the year reporting encouraging Q4 financial results from their brokerage activities, but many investors are also hedging their investments into the financial realm due to the renewed risk of inflation and the possibility of increased interest rates from the current, near-zero, levels they are currently at.

The Return to Normal Could Be Anything But

Altogether, the market may be in for some surprising developments in the coming weeks and months as traders attempt to navigate the rapid and unpredictable changes that have resulted from a year of strange yet somewhat predictable economic activity.

While the pandemic is tragic and trying for the entire world, the months of transition that will follow may end up being similarly difficult to anticipate as some industries make a comeback, as we are seeing in the travel and hospitality space, while others, like tech and online stocks, reckon with high valuations and diminished growth potential.

In any case, it promises to be an interesting few months on Wall Street, and traders shouldn’t count out the potential for more surprises among the market’s more volatile sectors.

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HIBL as of 12/31/2021

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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.