As summer starts to wind down, the S&P 500 appears to be cooling down with it. As the Federal Reserve resumes its hawkish stance with its interest rate hiking, recession fears are starting to bring down the S&P 500.
Inflation fears started to dissipate heading into July, but the summer rally is giving way to inflation fears as the Fed signals that more rate hikes are ahead. Further rate hiking is giving way to fears that it could eventually stifle economic growth, thus giving way to a recession.
“Recession fears are the most likely trigger of a retest of the June lows,” said Ed Clissold, chief U.S. strategist at Ned Davis Research, in a MarketWatch report. “From a seasonality perspective, a retest could come in the next several weeks.”
The S&P 500 is down about 18% overall and has been in the red for practically all of 2022. A second-half rally could be underway, but all eyes will remain fixated on the Fed and how it reacts to the current economic uncertainty.
On a more bearish note, new lows could also be tested as the S&P 500 index enters fall. According to Ned Davis Research, the stretch from September 6 to October 25 could be a rough one based on research.
“I think we have to go back and test that level,” said Bob Doll, chief investment officer of Crossmark Global Investments, in the same MarketWatch report. “I don’t think the bear market is necessarily over."
2 Options for New Lows or a Recovery
When it comes to trading the S&P 500, investors don’t have to wait idly and buy the dips, then wait for the subsequent run higher. Advanced investors can trade both bullish and bearish moves using Direxion leveraged ETFs.
If traders foresee new lows in the index, they can use the Direxion Daily S&P 500 Bear 3X ETF (SPXS ). SPXS seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.
On the flip side, when the S&P 500 recovers, traders can play to the upside with the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL ). Both ETFs offer thrice the leverage, so seasoned traders only should use these products.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.