A slow but steady summer climb in the S&P 500 has been evident by the low volatility. But the possibility of a potential correction means traders can be prepared with a pair of leveraged ETFs from Direxion.
As a Wall Street Journal article reported, the major stock market indexes have “hung at or near records as the summer doldrums continued,” and have been “on a slow and steady march upward for weeks, and measures of volatility are near historic lows.” The Cboe Volatility Index is down about 16% within the past year. And it’s been down 17% in the last three months, confirming the lack of market fluctuations.
Of course, that could change given the sensitivity to economic data that could signal rate cuts or a continuation of the higher-for-longer narrative. In addition, a forthcoming presidential election and continued fixation on the U.S. Federal Reserve’s interest rate policy in the coming months can certainly spike volatility upward. Overall, when it comes to the S&P 500, there’s still a healthy dose of bullishness abound at least in the near-term horizon.
“We believe the fundamental backdrop remains supportive for equities, driven by solid economic and earnings growth, interest rate cuts, and rising investment in AI,” said UBS strategist Vincent Heaney.
If the trend continues to skew toward the upside, traders who want triple their exposure to the S&P 500 will want to continue with the Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL). However, in the event of a market correction, taking the other side with the Direxion Daily S&P 500 Bear 3X ETF (SPXS) is the ideal countermove.
Prepare for Potential Correction
Bitcoin’s recent price volatility, for example, could be a sign of a potential correction despite the S&P 500’s recent record highs. While it might seem like cryptocurrencies would be uncorrelated to traditional assets like stocks and bonds, 2022 could serve as a quick reminder when all assets were heading lower.
In more recent history, bitcoin’s prices have responded well to lower interest rates. And the higher-for-longer narrative could potentially upend the S&P rally as it has done to bitcoin recently. This is where having the ability to stay flexible with funds like SPXL and SPXS can be beneficial for traders.
“It’s the availability of cheap, fed liquidity that drives drives the price of bitcoin,” said Barry Bannister, managing director and chief equity strategist at Stifel. “Every single dovish pivot for the past 13 years has marked a sharp bitcoin increase, and bitcoin is a non interest bearing asset that thrives on lower interest rates and available liquidity.”
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