Inverse ETFs to Play Now on Middle East Tension & Rising Rates?

Wall Street wavered this week on high inflation data which lowered chances of an imminent Fed rate cut. Also, Israel prepared for a possible strike by Iran. This should aid haven demand and weigh on risk-on trade activities. Kenneth Rogoff of Harvard University indicated that U.S. interest rates are likely to remain higher for longer, per CNBC.

Hot Inflation

U.S. inflation jumped in March, surpassing expectations primarily due to higher petrol and shelter costs, dashing hopes of a June interest rate cut by the Fed. The US consumer price index (CPI) rose by 0.4% sequentially, exceeding estimates from Wall Street. Over the 12-month period ending in March, the CPI recorded a 3.5% year-over-year increase, marking the largest gain in six months since September 2023. This follows a 3.2% rise in February 2024.

Rising Rate Concerns

Thanks to the sticky inflation, interest rates are likely to be higher for longer. A jump in oil prices is likely to push up inflation in the medium term. This scenario and the resultant higher rates are not great for growth stocks like technology and some consumer discretionary companies.

Notably, the 10-year benchmark U.S. Treasury yield jumped to 4.56% on Apr 11, 2024 from 4.33% recorded on Apr 1, 2024. The average rate on the 30-year mortgage increased to 7.37% on Thursday, a steep climb from 7.11% at the beginning of the week, according to Mortgage News Daily, quoted on Yahoo Finance.

S&P 500 to Correct in Near Term?

CFRA’s Stovall indicated that the S&P 500 can go higher, but expects a correction ahead, as quoted on CNBC. No wonder,  hedge funds are selling stocks at the fastest pace in three months and stepping up short bets, as quoted on CNBC article.

Against this backdrop, investors should closely watch the investing scenario. If there are cues of further downturn in the market because of high rates and overvaluation concerns, investors can play inverse equity ETFs with a short-term view.

Inverse Nasdaq ETFs includeProShares UltraPro Short QQQ SQQQ, ProShares UltraShort QQQ QID and ProShares Short QQQ PSQ. Inverse S&P 500 ETFs include Direxion Daily S&P 500 Bear 1x Shares SPDN, ProShares Short S&P500 SH, ProShares UltraShort S&P500 SDS and Direxion Daily S&P 500 Bear 3X Shares (SPXS).

Inverse Dow Jones ETF includes ProShares UltraPro Short Dow30 SDOW. Small-cap inverse ETFs includes Direxion Daily Small Cap Bear 3X Shares TZA and ProShares Short Russell2000 (RWM).

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ProShares UltraShort S&P500 (SDS): ETF Research Reports

Direxion Daily Small Cap Bear 3X Shares (TZA): ETF Research Reports

ProShares Short S&P500 (SH): ETF Research Reports

Proshares Short QQQ (PSQ): ETF Research Reports

Direxion Daily S&P 500 Bear 1X Shares (SPDN): ETF Research Reports

ProShares UltraPro Short Dow30 (SDOW): ETF Research Reports

ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports

ProShares UltraShort QQQ (QID): ETF Research Reports

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