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Education Series: Single-Stock ETPs

Santa Rally or Heavy Sledding?

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

The unemployment benefits edged modestly higher by 4K to 230K last week, the Bureau of Labour Statistics report showed on Thursday. However, the figures are unlikely to change the Federal Reserve’s stance on further interest rate hikes as unemployment is still near 50-year low. As financial conditions continue to tighten and monetary policy becomes even more restrictive, the labour market is likely to contract further, and unemployment rate could rise to around 5% from 3.7% currently.

Layoffs are starting to grow with rate sensitive tech companies cutting staff as consumer spending slows. The labour market has weakened with continuing jobless claims climbing to its highest level since February 2022; however, the labour market is still tight to raise hopes the Fed might be getting close to pivoting.

The data follows last week’s NFP report that showed stronger than expected employment in November and increased wages, raising fears that the Federal Reserve could extend the tightening cycle for longer in its aim to contain inflation.

The producer price index (PPI) rose 0.3% from October, exceeding analysts’ expectations for a 0.2% gain. The report also showed that both the PPI and core PPI were stronger than expected on a yearly basis. The core PPI index rose by 6.2% from a year earlier in November, easing from a 6.7% advance in October, but above market expectations of a 5.9% gain, and was the lowest reading since June 2021. Equity markets were down on Friday as a hot reading on the PPI tempered expectations that the Federal Reserve will soon slow its aggressive tightening campaign.

The Fed has raised the policy rate by 375 basis points so far in 2022, which is the fastest tightening cycle in 40-years. The markets are widely expecting the U.S. central bank to hike rates by 50 basis points to 4.25%-4.50% on Wednesday, with rates peaking in May 2023 around 5%.

The tech heavy benchmark rebounded in October, partly on hopes the Federal Reserve will be slowing the pace of interest rate hikes, as it wants to observe how much previous tightening has impacted the economy. Investors are trying to gauge the potential terminal rate and eventual pivot, and somehow seem to be ignoring concerns about the damage an economic slowdown could exert on corporate earnings.

As we approach 2023 concerns of a global recession, a multi-year period of slow growth and asset repricing due to higher interest rates are rising. With global growth slowing and central banks still rising rates, the current macro-economic backdrop does not support a sustained up-trend just yet.

2022 has been a year of macroeconomic and geo-political shocks and one of the most challenging years for investors since the Global Financial Crisis. The past two months have seen an encouraging relief rally; however, investor sentiment is still fragile. The technology sector has been particularly hard hit, as rising interest rates and deteriorating investor confidence have a big impact on valuations.

Source: Tradingview

Given the aggressive tightening we have seen in 2022, the economic outlook for 2023 is downbeat. The charts are not encouraging either. In our view the bear market is not over yet, and the worst is likely still ahead of us. Therefore, we are of the view that the current rebound is a bear market rally rather than a return to a new bull market.

The current upswing has rebounded to its medium-term down trend line crossing at 12,150 which is likely to act as a dynamic resistance for the index. Momentum conditions remain particularly weak, and we favour further weakness in the months ahead. The potential medium-term downside target is 9,800.

Active traders looking for magnified exposure to the tech sector may consider our 3x Long US Tech100 and our -3x Short US Tech100 ETPs.

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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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Director

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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