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On the 18th of September, the U.S. Federal Reserve System (or “Fed”) slashed interest rates for the first time since March 2020. The decision wasn’t a unanimous one among the Governors; nonetheless, it was a supersized one at 50 basis points. While Federal Reserve Chair Jerome Powell stated that such a decision was made to keep the US economy in its current “good shape”, the reality is that that both consumers and businesses in the U.S. have been reeling from high borrowing costs. While the cut delivers some benefits to them, it is not a given that economic risks have diminished.
Since 1990 and excluding the rate cuts made during the pandemic, the Fed has had six rate cut cycles. On average, the economy has fallen into a recession 18 months from the point that the Fed began cutting rates. But this average is derived from a wide range: after the Fed began cutting rates in July 1995, recession occurred a full 69 months later. On the other hand, a recession was declared immediately after Fed cut rates in July 1990 and two months after cuts began in January 2001.
The unemployment rate is a key indicator on whether the U.S. is in a recession and there are several critics of the means of calculating this. Nonetheless, even by the Fed’s own accepted means of calculation, the unemployment rate rose by 1.4% on average across all six cycles. Here too are a number of variances: a year after the rate cuts started in July 1995, the unemployment rate remained unchanged. On the other hand, the unemployment rate was actually lower from the previous year when the Fed initiated rate cuts in September 1999. In the other four cycles, unemployment rate rose by at least 1% a year afterwards.
All in all: at least since the nineties, the Fed’s rate cut cycle emerges more often as the means to soften the blow for consumers and businesses while recession is underway and provide the means for them to rebuild afterwards. As a means of preventing recession or indicating that a recession won’t happen, it has consistently failed.
The size of the rate cuts in itself wasn’t much of a surprise to markets: as of the Sunday preceding the rate cut announcement, a majority of traders focused on U.S. markets had estimated it.
Source: CME FedWatch
The Magnificent Seven – comprising of Alphabet (or “Google”), Apple, Microsoft, Tesla, Amazon, Meta Platforms (or “Facebook”) and NVIDIA – had largely been on a tear for several quarters preceding the rate cut announcement. On the day of the rate cut announcement, however, some of the Magnificent Seven (notably: NVIDIA) did show signs of weakness while the rest of the broad-market S&P 500 showed some signs of recovery:
Source: FinViz
By the end of the week, however, it emerged that – within the S&P 500 – energy, financials and certain tech names dominated positive trajectories.
Source: StockTwits
When considering the Magnificent Seven on average (in equally-weighted terms on a daily basis rather than market capitalization), conviction more or less held out and even strengthened after the rate cut announcement.
Source: Leverage Shares analysis
Relative to 3rd September and as of the 23rd of September, the Magnificent Seven (on average) rose with around a 4% premium over even the “tech-heavy” Nasdaq-100 and a 5% premium over the broad market.
In fact, the bulk of a positive uptrend in their trajectories have yielded professional investors in Europe a strong possibility in making tactical gains via the 5x Magnificent Seven ETP (MAG7) which is primed to collect outsized returns on an uptrend:
Source: Leverage Shares analysis
Across September till the 23rd, it has delivered over 31% in performance, i.e. nearly 7 times what holding the Nasaq-100 would have delivered.
Regardless of NVIDIA’s performance – which is largely informed by uncertainty of recent growth being maintained as AI spending is expected to either draw down or diversify away from being driven by the company’s products – the Magnificent Seven has positioned themselves in U.S. market investors’ collective consideration as being the cornerstone of the U.S. market and also generally expected to be the most “survivable” companies outside of energy firms and major financial institutions. The recovery trends overall across the Magnificent Seven doubles down on the expectation that recessionary concerns haven’t significantly dissipated and that market breadth isn’t expected to increase.
Professional investors in Europe can consider a number of scenario-driven tactical plays to boost portfolio gains as uncertainty looms. For instance, in the event that the bulk of investor conviction rotates out of the Magnificent Seven and into either the bulk of the S&P 500 or Nasdaq-100, holding the “-3x Short Magnificent 7 ETP” (MAGS) as well as the +5x Long S&P 500 ETP (SP5Y) or the +5x Long Nasdaq 100 ETP (QQQ5) could deliver strong benefits during the shift of convictions out of the Magnificent Seven. In the event that the inverse happens, MAG7 along with the -5x Short S&P 500 ETP (SP5Y) or the -5x Short Nasdaq 100 ETP (QQ3S) could.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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The ETP securities are intended for sophisticated investors who (i) are able to monitor their investment in the ETP securities on a frequent basis in line with the recommended holding period; (ii) understand the risk of compounded returns and the increased risk of investment in leveraged products; (iii) can afford to risk losing their investment; and (iv) and have a very short investment horizon in line with the recommended holding period. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer. This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy. Any decision to invest should be based on the information contained in the relevant base prospectus after seeking independent investment, tax and legal advice.
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The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
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The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
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Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
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This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
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Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
