Stocks inched higher in early trading ahead of a pivotal Fed rate decision slated for release this afternoon. According to a recent CNBC survey, investors are expecting a more hawkish Fed, the central bank is widely expected to raise rates by 50 basis points and a second one in June as it looks to quell outrageous inflation.
Wall Street strategists expect a bumpy road ahead for stocks as the Fed policy changes come to fruition. The median year-end target for the S&P 500 stands at 4,900, representing a gain of 15% from yesterday’s close.
Today we’ll discuss a short-term play that allows shareholders to benefit from backslides in the market. This valuable tactic can be used as a hedge and also to generate quick profit when things take a turn. Unlike short-selling, the risk associated with this tactic is limited, in theory making it a safer option.
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“A massive and surprising new transition could determine the next group of millionaires,” says Chaikin, who predicted the 2020 market crash. “While leaving 99% of the public worse off than before.”
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Traders who are looking to benefit from sliding stocks often turn to short-selling. The main risk of traditional short-selling is that while profit is capped (a stock can only fall to zero), the risk is theoretically unlimited. Of course, other tactics can be used to cover a position at any time, but with a short-selling position, inventors are at risk of receiving margin calls on their trading account if their short position moves against them.
Inverse or “short” ETFs are another option that allows you to profit when a particular investment class declines in value. Some investors use inverse ETFs to profit from market declines, while others use them to hedge their portfolios against falling prices.
Over short periods, you can expect that the inverse ETF will perform “the opposite” of the index, but over more extended periods, a disconnect may develop. Inverse ETFs will decline as an asset appreciates over time. For that reason, inverse ETFs typically are not seen as suitable long-term investments. Furthermore, frequent trading often increases fund expenses, and some inverse ETFs have expense ratios of 1% or more.
When approached correctly, inverse ETFs can be excellent day-trading candidates and highly effective short-term hedging tools. There are several inverse ETFs that can be used to profit from declines in broad market indexes, such as the Russell 2000 or the Nasdaq 100. Also, there are inverse ETFs that focus on specific sectors, such as financials, energy, or consumer staples.
With $4 billion in assets, the ProShares Short S&P 500 (SH) is the largest inverse fund by value. Commonly used by investors as a hedging vehicle, the fund strives to deliver the inverse performance of the S&P 500 (SPX). If you’re concerned about the stock market falling, this is the fund that moves in the opposite direction of the largest 500 U.S. corporations is the simplest way to protect yourself.
It’s important to note that SH is designed to deliver inverse results over a single trading session, with exposure resetting on a monthly basis. Investors considering this ETF should understand how that nuance impacts the risk/return profile and realize the potential for “return erosion” in volatile markets. SH should definitely not be found in a long-term, buy-and-hold portfolio. The fund comes along with an expense ratio of 0.9%.
Should you invest in SH right now?
Before you consider buying SH, you'll want to see this.
Investing legend, Keith Kohl just revealed his #1 stock for 2022...
And it's not SH.
Jeff Bezos, Peter Thiel, and the Rockefellers are betting a colossal nine figures on this tiny company that trades publicly for $5.
Keith say’s he thinks investors will be able to turn a small $50 stake into $150,000.
Find that to be extraordinary?
But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.