Does an "Elusive Soft Landing" Spell Opportunity for Inverse ETFs?

Stubborn inflation continues to rack the capital markets and the soft landing that the U.S. Federal Reserve was hoping for in 2023 could prove to be more elusive than originally anticipated, according to economists at Mizuho Securities.

The major stock market indexes have been rallying for much of 2023. This comes amid optimism that the Fed would eventually decelerate the pace of its rate hikes. However, Mizuho economists think that the Fed’s chasing of “an elusive soft landing” could make for a bearish outcome.

The Fed has been trying to tamp down inflation without spinning the economy into a recession. But inflation is becoming more stubborn as 2023 wears on. “The Mizuho team thinks the result will be more damage on the economy than investors currently expect. While the central bank works to bring the cost of living back down its 2% yearly target,” MSN reported.

Much of the 2023 rally has been propelled by dominance in big tech, which comprises a sizeable portion of the S&P 500. The S&P 500 is up almost 16% for the year, which is paired with the Nasdaq 100’s 40% gain year-to-date.

Mizuho Securities economists Steven Ricchiuto and Alex Pelle noted that “the market is discounting that the worst of the economic slowdown has already transpired.” That could be supported by recent lukewarm employment numbers, which could be an early sign that economic strength could be waning.

2 Inverse ETFs to Consider

Mizuho economists think that a soft landing would be “extremely difficult to accomplish.” The threat of a recession still looms. But traders can eye a pair of inverse ETFs for opportunities.

If big tech is starting to look frothy, consider the Direxion Daily Technology Bear 3X ETF (TECS). TECS seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the Technology Select Sector Index, which is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector.

For any bearish moves in the S&P 500, traders can use the Direxion Daily S&P 500 Bear 3X ETF (SPXS). The fund seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.

Since these funds use triple leverage, only seasoned traders should utilize them.

For more news, information, and analysis, visit the Leveraged & Inverse Channel.