Correction Prep With These Inverse ETFs
U.S. equities have been on a multi-year bull streak. We are now seeing some weakness in the markets. Bearish, short ETFs to hedge against potential turns. With U.S. markets showing some chinks in the armor, investors can utilize inverse or short exchange-traded funds to hedge against a bearish turn. Some market observers point out that it has been over 1,200 days since the S&P 500 experienced a 10% or greater correction, reports John Melloy for CNBC . For those who are wary of a potential pullback in the S&P 500 index, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500. The ProShares Short S&P 500 ETF (NYSEARCA: SH ) takes a simple inverse or -100% daily performance of the S&P 500 index. Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P 500 ETF (NYSEARCA: SDS ) , which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares ETF (NYSEARCA: SPXS ) , which takes the -3x or -300% daily performance of the S&P 500, and the ProShares UltraPro Short S&P 500 ETF (NYSEARCA: SPXU ) , which also takes the -300% daily performance of the S&P 500. Market participants are growing wary after a lackluster start to 2015, with poor earnings growth and a significant rally in 2014. According to a recent Investors Intelligence survey, 34.7% of polled strategists see a correction ahead, compared to 31% a week ago. “I believe that the end of Fed QE (cannot be replaced by ECB QE in its influence) and growing possibility in my mind of a June rate hike, at the same time earnings growth is slowing, dramatically raises the risk of a stock market correction,” Peter Boockvar, strategist for The Lindsey Group, said in the article. “After six years into a bull market where valuations are very stretched, investors should be watching their back and not swinging for any fences anymore.” Furthermore, looking at the fixed-income market, Bob Walters, who oversees the capital markets business for Quicken Loans, argues than an inverting yield curve could indicate a slowdown or recession could occur this year, reports Ron Insana for CNBC . Specifically, the flattening yield curve usually occurs during a slowdown and inverts during a recession where long-term rates are lower than short-term rates. The central bank typically hikes short-term rates to cool an overheating economy. Meanwhile, long-term bonds will see greater demand and yields fall as higher short-term rates help depress inflation expectations. Alternatively, investors can also capitalize off the fall in the widely viewed Dow Jones Industrial Average through the ProShares Short Dow 30 ETF (NYSEARCA: DOG ) , which tries to reflect the -100% daily performance of the Dow Jones Industrial Average. For the more aggressive traders, the ProShares UltraShort Dow 30 ETF (NYSEARCA: DXD ) takes the -200% of the Dow Jones and the ProShares UltraPro Short Dow 30 ETF (NYSEARCA: SDOW ) reflects the -300% of the Dow. Lastly, the ProShares Short QQQ ETF (NYSEARCA: PSQ ) takes the inverse or -100% daily performance of the NASDAQ-100 Index. For the aggressive trader, the ProShares UltraShort QQQ ETF (NYSEARCA: QID ) tracks the double inverse or -200% performance of the NASDAQ-100, and the ProShares UltraPro Short QQQ ETF (NASDAQ: SQQQ ) reflects the triple inverse or -300% of the NASDAQ-100. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.