Rough Q2 Start Puts Bearish S&P 500 ETF in Play

The S&P 500 has been touching new highs after a rocky start to the first quarter of 2024, and is doing the same thing again at the start of Q2. While market corrections will happen invariably, it’s a reminder that traders can always take advantage of any short-term weakness.

The higher-for-longer interest rates narrative doesn’t appear to be fading into the backdrop just yet as the economy continues to run hot. While this is happening, it makes the capital markets uneasy, thinking that the Federal Reserve will keep putting rate cuts on the back burner.

“The second quarter for stocks is off to a rough start as sticky inflation data to end last week and some strong economic data on Monday send yields higher and reduce odds the Fed will cut rates in June,” CNBC reported, noting that rising yields are applying downward pressure to the stock market.

In the meantime, recent highs are allowing traders to take profits as the Fed continues to preach patience when analyzing economic data before resorting to rate cuts. The theme of artificial intelligence (AI) and strong corporate earnings continued to fuel optimism in Q1 even if rate cuts were prolonged.

“What we’re seeing is a one-two punch with the combination of continued hot inflation data with profit taking,” said Greg Bassuk, CEO of AXS Investments. With “very significant Q1 market gains … we’re due for a little correction. But we think that the investor narrative also continues to be higher for longer with respect to interest rates.”

Play Upside and Downside in the S&P 500

If investors continue to slough off the effects of high inflation and proceed with the optimism of forthcoming rate cuts, the recent correction could be a distant memory. In the meantime, if more weakness occurs, it’s an opportune time for traders to have tools available like 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.

If the index resumes the bullishness it’s been showing through Q1, then traders can get back on the rally using the Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL). Having the flexibility of ETFs that play both sides give traders the chance to profit in any market irrespective if it trends higher or lower.

SPXS Chart

SPXS data by YCharts

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