Direxion Daily Small Cap Bull 3x Shares

TNA

Market cap $2.06B

Although the broader equities market can occasionally vacillate between order and outright chaos, small-capitalization enterprises tend to amplify the extreme ends of behavioral distribution. By their nature, businesses that are less financially resourced must operate with tighter margins for error.

There's less than two weeks left in 2025, but for small-caps, the new year is already here. Morningstar made light of the outperformance in small-caps, which historically manifests itself in an early year rally known as the “January Effect.

Traders worried about large-cap stocks hitting peak valuations may want to step into the midcap arena. Long- and short-term traders can also take advantage of future upside if the market environment shifts in favor of these companies.

Amid a weaker-than-expected U.S. economy in 2025, the Russell 2000-tracking Direxion Daily Small Cap Bull 3X Shares ETF has marginally underperformed the S&P 500. Looking ahead to 2026, the Russell 2000 should benefit from an acceleration in U.S. GDP growth, a falling unemployment rate, and ongoing Fed rate cuts. The Russell 2000 offers a sizable ~35% trailing P/E discount relative to the S&P 500, partially stemming from its sizable (but declining) overweight position in cyclical sectors.

Direxion Daily Small Cap Bull ETF (NYSEARCA:TNA) is down 1.62% as this exchange traded fund (ETF) magnifies a 0.36% decline in its underlying small-cap index, the Russell 2000.

If the CME FedWatch Tool is correct, then there's a 90% chance the U.S. Federal Reserve institutes a rate cut of 25 basis points. It should result in positive moves for a market that's been expecting rate cuts all year, but four sectors in particular should benefit from easing monetary policy.

Risk is in vogue with ETF investors again. Signs of speculative fervor are increasingly clear — but are investors willing to jump in?

Throughout most of recent history, small-cap stocks have dramatically underperformed their large-cap counterparts. Over the past 10 years, the Vanguard Russell 2000 ETF (VTWO) that tracks the popular small-cap index has delivered a 106% total return to investors, compared with 257% from the large-cap Vanguard S&P 500 ETF (VOO).

Much credit goes to large-caps for pulling the broad market out of April's sell-off abyss. But traders looking for other plays this summer may want to consider downsizing with small- and midcap plays.

TNA offers 3x daily exposure to the Russell 2000, making it suitable for active traders but not for long-term investors. Small-cap stocks may struggle in an inflationary environment, even if interest rates decline, due to higher import costs and tighter margins resulting from tariff policy. Holding TNA beyond a single day exposes investors to compounding risks and value decay, especially during consecutive down days.