ETFs to Hedge Against a Retreating S&P 500

With market moves picking up after the summer lull, the stock market declined as investors position for a potential interest rate hike following next week’s Federal Reserve meeting. Exchange traded fund investors who are wary of further slips in equities may consider inverse or bearish strategies to hedge against further drawdowns.

Prior to the recent selling last week, the S&P 500 index had registered no single 1% decline for 52 consecutive trading sessions, with the index and related SPDR S&P 500 ETF (NYSEArca: SPY) both trading near historic highs. Since Thursday, SPY has fallen off about 2.4%.

More importantly, technical traders may have noticed that the S&P 500 and SPY have both dipped below their short-term 50-day moving averages, which suggests that the equities market are stuck in weak short-term momentum. Further selling pressure would be needed before the market’s internal measures push down to oversold levels.

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As we head toward a quiet period for the Federal Reserve ahead of the Wednesday, September 21 Federal Open Market Committee meeting announcement, interest rate speculation will continue to run rampant.

Consequently, with uncertainty rising, investors may consider a hedge against further market turns. There are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off of further weakness in the S&P 500.