Federal Reserve interest rate policy and recession fears will continue to remain key risks for volatility, but other unforeseen events like the recent banking crises could keep investors on edge. As such, lingering volatility could spell opportunities in leveraged exchange traded funds (ETFs), particularly those that focus on the S&P 500.
Needless to say, investors have a wall of worry to climb heading into 2024. That could mean more market volatility ahead, which the capital markets saw much of in 2022.
“Markets could still be volatile around news events such as new regional bank failures or the debt ceiling drama in Washington,” the Morningstar article said.
The capital markets are expecting a Fed rate hike pause at some point, acknowledging that inflation is finally easing. Inflation has certainly proven to be sticky and stubborn, making for volatile times once again in major market indexes like the S&P 500 — nonetheless, the index is still up about 8% for the year despite the macroeconomic challenges.
“Although they stopped short of saying that it would be an official pause, we do think the bar is pretty high for them to continue to hike rates,” said Collin Martin, fixed-income strategist at Charles Schwab, who acknowledged that inflation is still running high and therefore, could warrant further rate hikes.
“The market seems to think that when the Fed tighten, they hit a peak and then we need to go back to zero (interest rates) because that’s what we’ve done the last two times,” Martin added. “But that’s not necessarily the case.”
4 Ways to Trade the S&P 500
Given the recent market fluctuations surrounding interest rate policy and a potential recession, more market volatility could be ahead for the S&P 500. Direxion Investments has four ETFs that could take advantage of the movements:
- Direxion Daily S&P 500 Bear 1X Shares (SPDN)
- Direxion Daily S&P 500 Bull 2X Shares (SPUU)
- Direxion Daily S&P 500 Bull (SPXL) and Bear (SPXS) 3X Shares
SPDN offers traders an ideal hedging component if they’re bullish on the S&P 500. It also minimizes risk with 1x exposure versus double or triple the exposure.
For added leverage for a bullish conviction, SPUU adds double the exposure to the S&P 500. And if that’s not enough, there’s SPXL for triple the exposure and if a trader is high on a bearish play, that same exposure can be had in SPXS.
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