Defensive Sector ETFs Rise as Big Tech Slides

While Meta's positive earnings helped boost the social media tech giant's stock price more than 12% to open Thursday trading, performance was all downhill from there for mega-cap technology ETFs as the Technology Select Sector SPDR Fund ETF (XLK) slid 4% for the day and Meta gave up most of its earlier gains.

Meanwhile, cautious investors bid up prices for traditional defensive sectors, such as the Utilities Select Sector SPDR ETF (XLU), the Consumer Staples Select Sector SPDR ETF (XLP), and the Health Care Select Sector SPDR Fund ETF (XLV), which all put up solid gains of nearly 1% or higher.

This divergence in sector performance continues part of a stock rotation trend where investors are reducing exposure to mega-cap tech ETFs and adding to defensive positions in utilities, consumer staples, and healthcare.

Defensive Sector Performance vs Technology: July 2024

The GraniteShares 2x Long NVDA Daily ETF (NVDL) may be getting most of the attention, but it’s not the only leveraged single-stock ETF attracting interest from investors.

Today, the GraniteShares 2x Long META Daily ETF (FBL) soared as much as 22% following the late Wednesday release of a strong earnings report from Meta. FBL was more recently up about 12.7%.

FBL has nearly $150 million in assets under management and is up 69% since the start of the year.

Meta’s Q2 earnings results beat analyst estimates on both the top and bottom line. The company’s strong revenue growth of 22% offset concerns that Meta might be spending too much money on its AI investments.

CEO Mark Zuckerberg noted that those investments are already paying off in the form of improvements to its recommendation algorithms, higher engagement for its apps, and better results for its advertisers.

Though it has a long way to go, if Meta keeps soaring, perhaps FBL could be the next billion-dollar single stock leveraged ETF. 

Social media giant Meta Platforms Inc. reported a solid earnings beat after the bell Wednesday, sending ETFs holding the company's shares soaring in midmorning trading Thursday.

METU, the Direxion Daily META Bull 2X Shares and FBL, GraniteShares 1.5x Long META Daily ETF were the two top gainers, according to etf.com data, both up more than 14%.

ETFs with large allocations in Meta were also boosted Thursday as shares in the Facebook and Instagram parent jumped 6.6%. VOX, the Vanguard Communication Services ETF and FCOM, the Fidelity MSCI Communication Services Index ETF were both around 1.5% higher. Both funds allocate more than 20% to Meta.

Meta ETFs have struggled in the last 3 months as investors have rotated away from big tech names, wary that the companies wouldn't be able to maintain growth and momentum. Instead, traders have favored small caps lately, to take advantage of companies that have missed out on gains. 

RSP, the Invesco S&P 500 Equal Weight ETF slid by more than half a percentage point on Thursdsay as investors piled back into the Magnificent Seven and megacap companies. The fund serves as a proxy for the 450 companies that lie outside of the Mag 7 and megacaps.

Fixed Income Jumps After Fed Decision

Remarks on Wednesday from Fed Chair Jay Powell hinting at rate cuts coming in the fall sent fixed income higher Thursday as investors eagerly awaited an end to the "higher for longer" rate environment that has kept Treasury ETFs on a rollercoaster ride.

TLT, the IShares 20+ Year Treasury Bond ETF was among the most actively traded ETFs Thursday, according to etf.com data, with nearly 30 million shares trading shortly after 11 a.m. The ETF, the largest Treasury bond fund jumped roughly 1.3%.

Jobless claims data released Thursday also buoyed investor hopes that rate cuts would be coming at the next Fed policy meeting in September. Jobless claims, or the number of people filing for unemployment for the first time jumped last week to its highest level in a year, signaling a cooling labor market and economy.

With the latest data, the Fed has been given more reason to cut rates and boost the economy and the markets. According to the CME Fed Watch Tool, investors are now forecasting a 84% chance that the Fed will cut rates 25 basis points in the Fall.