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Are Leading Indicators Calling for Slowdown in the United States?

Direxion - Author

Nov. 21 2018, Updated 11:37 a.m. ET


The United States’ economy has been firing on all cylinders for a while now, which has led to very strong gains for its major stock indices. These gains include year-to-date returns of 3.5% for the Dow Jones Industrial Average, 4.2% for the S&P 500 Index, and 7.3% for the NASDAQ Composite Index as well as gains of 10% for the Direxion Daily S&P 500 Bull 3X Shares (SPXL) through October 10.

While the major indices have been hovering around all-time highs, leading indicators—including semiconductors, financials, and homebuilders—have been showing some weakness, to say the least. The Daily Semiconductor Bull 3X Shares (SOXL), Daily Financial Bull 3X Shares (FAS), and Daily Homebuilders & Supplies Bull 3X Shares (NAIL) have quickly turned from market darlings to market duds, and the pain may only be getting started. Investors could choose to buy the Daily Semiconductor Bear 3X Shares (SOXS), Daily Financial Bear 3X Shares (FAZ), or the Daily Real Estate Bear 3X Shares (DRV) to profit from continued weakness in these leading indicators if they believe the weakness will continue. But also, some investors may start to look overseas for positive returns, as those markets have been particularly beaten up in the wake of trade wars.

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Market Realist

The stock market has enjoyed gains this year

As we near the end of 2018, it’s time to take a look back and see how the US stock market has fared this year. It was a blockbuster year in 2017 for the US stock markets and the global equity markets. Even the fixed income market enjoyed substantial gains. The emerging stock markets and the bond markets both caught our attention last year.

However, this year started on a rough note with the markets crashing in February and March as the volatility index climbed. Fear engulfed the market over rising inflation that could pressure the Federal Reserve to increase rate hikes. And that affected the stock market.

But the markets bounced back, as you can see in the above chart. As of October 10, the S&P 500 Index (SPY) has gained 4.2%, while the technology-heavy Nasdaq Composite Index (QQQ) has gained 7.5% YTD (year-to-date). The Dow Jones Industrial Average has risen 3.5% YTD, and the S&P 500 Bull 3X has gained 7.1%.

Sectors that declined this year

Some sectors suffered greatly this year, posting negative returns and slowing down the stock market. In this series, we’ll look at these sectors: semiconductors, financials, and homebuilders. As you can see in the above chart, year-to-date, the S&P 500 Bull 3X has outperformed the Direxion Daily Semiconductor Bull 3X ETF (SOXL), the Direxion Daily Financial Bull 3X (FAS), and the Direxion Daily Homebuilders & Supplies Bull 3X ETF (NAIL).

In this series, we’ll also take a look at the performances of emerging markets in China and Mexico.


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