Traders Target FAS, FAZ as Financials Trail Economy

Financial services stocks have underperformed the broader market this year even as U.S. economic indicators remain solid. The sector’s largest pure beta ETF was down 4.6% year-to-date through June 8, and some traders have moved into the 3x leveraged Direxion Daily Financial Bull 3X ETF (FAS) and its inverse, the Direxion Daily Financial Bear 3X ETF (FAZ).

FAS seeks daily returns equal to 300% of the S&P Financial Select Sector Index. FAZ aims to deliver 300% of the daily inverse of that same index. The financials sector holds the second-largest weight in the S&P 500, and the gap between economic data and sector returns has drawn short-term trading activity in both leveraged directions.

Morningstar strategist Tom Lauricella described the situation as a puzzle, noting that overall economic and credit measures do not show broad distress. He pointed to an uneven recovery, saying middle- and lower-income consumers face inflationary strain while higher earners have benefited from stock gains.

Another Morningstar analyst, Michael Miller, said some recent selling reflects concerns that artificial intelligence could reduce demand for labor or compress fee revenue in parts of the industry. He expressed skepticism about certain scenarios, including the idea that automated payment agents would quickly disrupt card networks.

The index tracked by FAS and FAZ covers a range of financial subsectors, not only banks. Miller identified commercial real estate brokerage, wealth management, financial data providers and insurance brokerage as areas where technology-driven changes could lower the cost of advice and reduce demand for some services.

Traders describe the sector as having mixed signals: steady macro data on one side and technology-related disruption on the other. As a result, leveraged bull and bear ETFs have been used by market participants to position for short-term swings rather than as long-term buy-and-hold investments.