Wall Street has delivered a mixed performance over the past month, with the S&P 500 losing about 1%, the Dow Jones retreating about 4.3% and the Nasdaq advancing about 2.6%. The major bourses hit a series of new all-time highs early in the month, extending the post-election rally on the resurgence of tech stocks (read: Can Dow Jones ETF Reverse From the Worst Losing Streak in 50 Years?).
The Dow Jones Industrial Average crossed the 45,000 milestone for the first time, while the S&P 500 touched nearly 6,100. The tech-heavy Nasdaq Composite Index topped the 20,000 milestone. However, the rally was dampened by the Fed’s less dovish cues.
Fed Cuts Rates by 0.25%, Signals Fewer Cuts Ahead
Markets experienced a sharp sell-off on Dec. 18, 2024, as Fed Chair Jerome Powell explained the central bank’s decision to cut interest rates at a slower pace next year than previously anticipated. The Fed now forecasts two rate cuts in 2025, down from the four anticipated in September. U.S. benchmark treasury yield was 4.62% as of Dec. 27, 2024, up from 4.19% recorded at the start of the month.
Investment strategists pointed to a shift in the Fed’s tone, causing uncertainty around the frequency and magnitude of future rate cuts in 2025. The upbeat U.S. GDP report and above-consensus retail sales data also strengthened the Fed’s slightly hawkish view for 2025 (read: Fed Cuts Rates by 0.25%, Signals Fewer Cuts: ETFs to Play).
U.S. Economy Grows 3.1% in Q3
The U.S. economy expanded at an annual rate of 3.1% from July through September, driven by strong consumer spending and increased exports, according to the Commerce Department’s revised estimate. This marks an acceleration from 3.0% growth in the second quarter despite high interest rates (read: U.S. Economy Grows 3.1% in Q3: ETFs to Play).
Upbeat Retail Sales
Retail sales in the United States increased by 0.7% in November 2024 from the previous month and 3.8% annually. Economists polled by Reuters had forecast retail sales to increase 0.5% on a month-on-month basis. Estimates ranged from a 0.1% dip to a 1.0% surge. The resilience of the labor market, helped by historically low layoffs and strong wage growth, supported strong consumer spending.
Key Fed Inflation Data Lower Than Expected
The PCE price index, the Fed’s preferred inflation gauge, registered an increase of just 0.1% from October and a 2.4% annual rate, both below expectations. Barring food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1 percentage point below the forecast. This is a scenario the Fed aims for when considering interest rate cuts.
Bitcoin Hits an All-Time High but Pares Gains
Bitcoin is down 1.3% in the past month after the cryptocurrency topped $107,000 for the first time. The cryptocurrency soared on hopes of the Fed policy easing as well as a U.S. strategic reserve. The latter move could push Bitcoin to $500, 000, per Bitwise CIO. Bitwise Asset Management CIO Matt Hougan expects Bitcoin to reach $200,000 by this time next year, as quoted on Yahoo Finance.
However, Bitcoin pulled back from the recent high of $107,000. The correction could hit $89,000 with Fibonacci levels and RSI divergence hinting at downside potential, as quoted on FX Empire. At the time of writing, Bitcoin is trading at a $95,000 level. Rising rates probably weighed on Bitcoin prices in recent trading.
Against this backdrop, we highlight a few winning leveraged ETF (exchange-traded fund) areas that excelled in the past month.
Top-Performing ETFs in Focus
Simplify Volt TSLA Revolution ETF VCAR – Up 47.3%
The Simplify Volt TSLA Revolution ETF (VCAR) seeks to provide capital appreciation by investing primarily in Tesla Inc. The fund uses an active management strategy to capture the potential of Tesla’s stock price movements while implementing an advanced options overlay to manage downside risks. The ETF’s expense ratio is 1.20%.
Defiance Quantum ETF QTUM – Up 22.2%
The underlying BlueStar Quantum Computing and Machine Learning Index consists of a modified equal-weighted portfolio of the stock of companies whose products or services are predominantly tied to the development of quantum computing and machine learning technology. The fund charges 40 bps in fees.
Themes Generative Artificial Intelligence ETF WISE – Up 18.8%
The underlying Solactive Generative Artificial Intelligence Index identifies 40 companies that derive their revenues from Artificial Intelligence, Data Analytics & Big Data, Natural Language Processing and Artificial Intelligence-Driven Services. The fund charges 35 bps in fees.
United States Natural Gas ETF UNG – Up 14.1%
The United States Natural Gas ETF LP is an exchange-traded security that is designed to track in percentage terms the movements of natural gas prices. The expense ratio of the fund is 1.01% (read: Natural Gas ETFs Rallying Hard on Cold Snap: Can It Continue?).
Simplify Interest Rate Hedge ETF PFIX – Up 14.1%
The Simplify Interest Rate Hedge ETF seeks to hedge interest rate movements arising from rising long-term interest rates and to benefit from market stress when fixed income volatility increases while providing the potential for income. The fund charges 50 bps in fees and yields 3.40% annually.
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