With large-caps getting most of 2024’s attention, traders may be overlooking one area that could offer opportunities. In the Fed’s rate-cutting cycle, traders may also want to pay attention to midcaps.
Large-caps may have already prices in cuts, leaving not as much room for higher movements, while small-caps could offer greater moves, but at greater risk. Midcaps can offer a balance between the two. And if history is right, they’re poised to outperform as the Fed eases monetary policy.
“Historically, midcaps really start to outperform once the Fed actually starts cutting rates,” said Carson Group’s Ryan Detrick.
“The start of the Fed rate cutting cycle is a potential source of incremental equity demand and boost to investor risk sentiment,” Goldman Sachs’ Jenny Ma mentioned in a note to clients. “In the short term, mid-cap performance relative to other segments will hinge on the strength of economic growth data and the pace of the Fed’s easing cycle.”
Triple Up on Midcaps
If midcap equities trend higher, traders may want to consider using the Direxion Daily Mid Cap Bull 3X Shares (MIDU ). The fund seeks daily investment results equal to 300% of the daily performance of the S&P MidCap 400 Index. That gives traders the ability to maximize profits if the index trends higher.
The index constitutes a float-adjusted market-cap-weighted index, measuring the performance of 400 midsize companies in the United States. The largest holding comprises just 0.76%, as of June 30 index information, avoiding heavy concentration in one stock. Traders get a balanced representation of midcap stocks with this fund.
“Mid caps have seen better recent guidance and revision trends, have outperformed small caps on average in Downturn regimes … and serve as a hedge against fewer-than-expected Fed cuts, given small caps’ rate sensitivity/ refinancing risk,” said Bank of America’s Jill Carey Hall.
Of course, traders who do want to stick with large-caps or even assume the higher degree of risk associated with small-caps also have options. For the former, consider using the Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL ), and for small-cap exposure, there’s the Direxion Daily Small Cap Bull 3X Shares (TNA ).
With all three funds using triple leverage, only seasoned traders should use these ETF products.
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