In an effort to rescue the U.S. economy from the effects of the COVID-19 pandemic, the Federal Reserve expended its heavy artillery on Sunday, slashing interest rates to near-zero while revealing a massive $700 billion bond-buying operation.
“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent,” said the Federal Open Market Committee (FOMC) in a statement. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
As was the case when the Fed announced an emergency 50-basis point rate cut earlier this month, market reaction, judging by Sunday night futures and early Monday trading in Asia. In other words, today and the rest of this week could be an exciting time for some or of the following leveraged exchange-traded funds.
Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF)
Long-dated Treasuries usually aren't thought of as exciting, but that reputation has been put to bed in recent weeks due to tumbling yields and increased market volatility. Well, when yields fall (as they did again Sunday evening), price rises and that's a boon for the Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSE: TMF).
TMF attempts to deliver triple the daily returns of the ICE U.S. Treasury 20+ Year Bond Index. That index excludes “zero-coupon STRIPS, inflation-linked securities, floating rate notes, cash management and Treasury bills, and any government agency debt issued with or without a government guarantee,” according to Direxion.
Last week, TMF tumbled nearly 22% as traders yanked $52.63 million from the fund, but following Sunday's Fed news, this ETF could be poised to bounce back.
Direxion Daily Regional Banks Bear 3X Shares (WDRW)
The disclaimer is, yes, the Direxion Daily Regional Banks Bear 3X Shares (NYSE:WDRW) plunged 35% last Friday on a day when stocks surged, but weakness in the bearish regional bank could be short-lived with the Fed taking rates to near zero.
Rate-sensitive regional banks were already under pressure before the Fed's Sunday announcement due to concerns that the three rate cuts announced last year and the one revealed earlier this year would combine to depress net interest margins.
As soon as today, WDRW could give signals as to how investors will treat regional banks in the wake of the Fed's latest rate cut. WDRW looks to deliver triple the daily inverse returns of the S&P Regional Banks Select Industry Index.
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL)
The Direxion Daily Homebuilders & Supplies Bull 3X Shares (NYSE: NAIL) has yet to be responsive to falling mortgage rates, indicating that the geared ETF has been swept up in broader market volatility, though it did climb 7.31% on heavy volume last Friday.
NAIL may be in store for some weakness today, but it's worth considering over the near-term for active traders.