This article was originally published on ETFTrends.com.
With the heightened uncertainties gripping the markets, investors may look to inverse or short stock ETF strategies to hedge potential risks ahead.
Morgan Stanley's chief U.S. equity strategist Michael Wilson warned the equity market is heading toward a destructive phase, CNBC reports.
"The Nasdaq could correct by 15 percent plus, the S&P 500 probably goes down about 10 [percent]," Wilson told CNBC.
Wilson argued that financial conditions are tightening faster than many expected and a correction may already be underway.
"The market has just been getting narrower and narrower. So what we've seen is every sector within the S&P has gone through about a 20 percent correction on valuation except for two: technology and consumer discretionary — basically growth stocks," Wilson said. "Our view is that this rolling bear market has to complete itself by hitting those two sectors, and we think that's actually begun."
The potential slowdown in growth and a shift toward value could cause problems in many popular growth plays, such as technology and consumer discretionary groups, which make up almost half the S&P 500.
10 ETFs to Hedge Against Dips in the Nasdaq
Nevertheless, investors can hedge against dips in the Nasdaq through bearish plays. For instance, the ProShares Short QQQ ETF (PSQ) takes the inverse or -100% daily performance of the Nasdaq-100 Index. For the aggressive trader, the ProShares UltraShort QQQ ETF (QID) tracks the double inverse or -200% performance of the Nasdaq-100, and the ProShares UltraPro Short QQQ ETF (SQQQ) reflects the triple inverse or -300% of the Nasdaq-100.
For a more technology sector focus, the ProShares UltraShort Technology (REW) takes the -2x or -200% daily performance of the Dow Jones U.S. Technology index and the Direxion Daily Technology Bear 3X Shares (TECS) reflects the -3x or -300% daily performance of the S&P Technology Select Sector Index.
Additionally, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500 as well. The ProShares Short S&P500 (SH) or the Direxion Daily S&P 500 Bear 1x Shares ETF (SPDN) take a simple inverse or -100% daily performance of the S&P 500 index.
Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P500 ETF (SDS) , which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares (SPXS) , which takes the -3x or -300% daily performance of the S&P 500, and ProShares UltraPro Short S&P 500 ETF (SPXU) , which also takes the -300% daily performance of the S&P 500.
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