Inflation appears to be stubborn and persistent. That’s providing entry points for three Direxion inverse ETFs for traders looking to capitalize on rising yields.
Economic data continues to fuel forecasts that the Fed could pump the brakes on its rate-cutting agenda in early 2025. The latest jobs report came out hotter than expected. That’s potentially prompting the Fed to mull how to guide the economy to a soft landing when the economy remains robust.
Fed Might Pause on Rates
Other data shows prices continuing to rise. The aforementioned Yahoo Finance report shows the consumer price index (excluding food and energy) “is seen rising 0.2% in December after four straight months of 0.3% [increases. That’s according] to the median projection in a Bloomberg survey of economists.”
The report added core CPI “is forecast to have risen 3.3% from a year [earlier. That matches] readings from the prior three months.” Summarily, this data could force the Fed to pause on rates. That’s after capital markets were expecting this year to see ongoing rate cuts.
“Recent FOMC communications indicate several members see the disinflation process as temporarily stalled, or see risks that it could. December’s CPI report is likely to support the view that it has indeed [stalled. That would add] to the case for a careful approach to monetary-policy decisions in coming quarters,” said economists Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou & Chris G. Collins.
Stubborn inflation could continue adding to the January effect. The S&P 500 is already down 1.3% to start the new year. If benchmark yields continue to rise, more investors could get nervous.
“If the 10-year hits 5% there will be a knee-jerk reaction to sell stocks,” said Matt Peron. Peron is Janus Henderson’s global head of solutions. “Episodes like this take weeks or maybe a few months to play [out. Over] the course of that the S&P 500 could get to down 10%.”
3 Funds to Consider
If yields continue to push higher, traders should look at the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). If rising yields and persistent inflation spark a sell-off in the S&P 500, traders should take a look at the Direxion Daily S&P 500 Bear 3X ETF (SPXS).
These inverse ETFs can allow traders to profit in the short term when Treasury bonds and the S&P 500 trend lower. Given the sensitivity to the Fed’s interest rate policy and other market forces, volatility can result. As such, inverse ETFs can help short-term traders by adding a degree of market flexibility. That’s an essential in a trader’s toolbox.
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