Don't Believe This Rally Will Last? Consider These 5 Inverse ETFs

The stock market has had quite an impressive past 4-days, breaking a 3-week slump. Since the close on Friday September 2nd, the Dow Jones has risen 2.6%, the S&P 500 rallied 3.6%, and the Nasdaq jumped 4.1%. 

This rally occurred in spite of Fed Chairman Jerome Powell’s speech on Thursday, where he reiterated his hawkish stance to fight sky-high inflation.  He said, “History cautions strongly against prematurely loosening policy,” and that, “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”

Though the stock market’s performance has been resilient over the past week, not everyone is bullish.  Blackrock, the world’s largest asset manager, warned in their weekly commentary, that the Fed is “ignoring the trade-off between inflation and growth,” and that they, “now we see recession in the cards early next year.”

Bank of America is also predicting a recession during the first half of 2023. Analyst Michael Hartnett said he expects "new highs in yields" and "new lows in stocks," as the Fed continues to raise interest rates aggressively to combat high inflation.

Morgan Stanley has quite a negative outlook as well.  Analyst Mike Wilson predicts that the S&P 500 will fall to 3,400 by the end of the year and if a recession hits the economy, the index could fall as low as 3,000. That’s 16% - 26% lower than where it’s currently trading.  

With these negative forecasts in mind, bearish investors may want to consider investing in inverse exchange traded funds (ETFs). Inverse ETFs use derivatives to profit from a decrease in an underlying benchmark. They are often used by investors that trade/invest in their retirement accounts, such as IRAs and Roth IRAs, due to prohibitive rules set by the Internal Revenue Service (IRS) that prevent short-selling.

Here are 5 inverse ETFs that each track different indices, are unlevered, and have net expense ratios under 1%:

S&P 500 Bear 1X Direxion (SPDN)

The Standard & Poor’s 500 Index, often referred to as the S&P 500, is a market-cap weighted index of 500 of the leading companies publicly traded in the United States. It is considered one of the best gauges of the stock market’s performance.

The Direxion Daily S&P 500 Bear 1X Shares (SPDN) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the S&P 500 Index.

If you’re looking to short the S&P 500, look no further than SPDN. That’s because the expense ratio is a very low 0.49%.

SPDN’s exposure:

Short Dow30 ETF (DOG)

The Dow Jones Industrial Average, often referred to as the Dow, was established in 1885 and is one of the most followed equity indices in the world. The index tracks 30 prominent publicly traded blue-chip companies and is price-weighted, meaning stocks with higher share prices are given greater weight.

The Short Dow30 ETF (DOG) seeks results that correspond to the inverse of the daily performance of the Dow Jones Industrial Average. This ETF was established in 2006 and has an expense ratio of 0.95%.

DOG’s exposure:

Short QQQ ETF (PSQ)

The NASDAQ-100 is composed of 102 of the largest non-financial companies listed on the Nasdaq stock exchange. The 102 companies are some of the most actively traded stocks on the Nasdaq and the modified capitalization-weighted index is heavily populated by companies in the technology sector. 

The Short QQQ ETF (PSQ) seeks results that correspond to the inverse daily investment performance of the NASDAQ-100. This ETF is currently up more than 20% year-to-date (YTD) and has an expense ratio of 0.95%.

PSQ’s exposure:

Short MSCI Emerging Markets ETF (EUM)

The MSCI Emerging Markets Index tracks the performance of large-cap and mid-cap companies in rapidly expanding economies around the globe. There are 1,382 constituents in this index from 24 different countries around the world. More than a third of the companies are Chinese.
The Short MSCI Emerging Markets ETF (EUM) seeks daily investment results that correspond to the inverse of the daily performance of the MSCI Emerging Markets Index. It has an expense ratio of 0.95%. As emerging market economies have been in a downturn, EUM has rallied more than 25% in the past year.

EUM’s exposure:

Short Russell 2000 ETF (RWM)

The Russell 2000 Index is composed of 2,000 small-cap companies included in the Russell 3000. Due to this index's wide breadth, this index is used as a gauge for measuring the performance of small-cap mutual funds.

The Short Russell 2000 ETF (RWM) seeks daily investment results that correspond to the inverse of the daily performance of the Russell 2000 Index. This ETF has an expense ratio of 0.95% and about 50% of this ETF is weighted within the financial, health care, and industrial sectors.

RWM’s exposure:

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• Stocks Extend Thursday’s Gains as Inflation Concerns Ease