Wall Street slumped last week, with the S&P 500 losing 2%, the Dow Jones shedding 2.3%, the Nasdaq losing 1.8% and the Russell 2000 retreating 4.5%. Less dovish Fed cues for 2025 led to this decline in shares. Although Wall Street dived in mid-week, markets recouped some of the previous losses to close out the week on cooling inflation data.

Let’s delve a little deeper.

Fed Cuts Rates by 0.25%, Signals Fewer Cuts

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.

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 (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 growing 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, has 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.

Against this backdrop, below we highlight a few winning leveraged ETF (exchange-traded fund) areas that excelled last week.

Leveraged ETF Areas in Focus

Inverse Cryptocurrency

ProShares UltraShort Ether ETF (ETHD) – Up 25.2%

Ethereum prices lost 13.7% last week, probably due to hawkish Fed cues. The overall cryptocurrency sector demands an easy money policy to excel. No wonder, Ethereum dropped last week, along with Bitcoin (down 9.1%). As a result, inverse leveraged ether ETF ETHD surged last week.

Volatility

2x Long VIX Futures ETF (UVIX) – Up 22.0%

Stock market volatility index VIX surged 29% last week. The week was characterized by a slew of economic data and the Fed policy meeting. The variations in economic data points and the policy outcome kept the stock market edgy and volatile last week, boosting the performance of the leveraged volatility ETF UVIX.

Inverse Energy

MicroSectors Energy 3X Inverse Leveraged ETNs (WTID) – Up 20.3%

Oil prices slumped about 1.5% last week due to weak Chinese demand and the higher value of the greenback. The 2025 outlook is also bleak for the commodity, with J.P. Morgan seeing the oil market moving from a balance in 2024 to a surplus of 1.2 million barrels per day (bpd) in 2025, as quoted on economictimes.com (read: Oil ETFs Gained 4% Last Week: Can the Rally Last?).

Inverse Gold

MicroSectors Gold Miners -3X Inverse Leveraged ETNs (GDXD) – Up 15.7%

The hawkish Fed signal helped theInvesco DB US Dollar Index Bullish Fund UUP gain by about 1%. This is a negative for gold prices as gold is priced in the U.S. dollar. Since gold mining stocks often act as leveraged plays on the underlying metal, this inverse leveraged mining ETN GDXD gained last week. 

Inverse MicroStrategy

Defiance Daily Target 2x Short MSTR ETF (SMST) – Up 15.1%

MicroStrategy (MSTR) shares lost 14.4% last week as the stock is the world’s largest Bitcoin hoarder and now acts as a proxy for Bitcoin performance. With Bitcoin prices falling last week, MSTR stock had every reason to underperform. This explains the rally in the inverse leveraged MSTR ETF (read: MicroStrategy to Join Nasdaq-100: Tap MSTR ETFs).

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Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports

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