MPower: Why You Need To Know This Strategy

The Fed and Jerome Powell stuck again, this time from a Federal Reserve symposium in Jackson Hole, Wyoming. During the conference, Powell reinstated his and the Fed’s resolve to fight inflation with a continued hawkish outlook. He admitted that this hawkish approach to inflation will cause “some pain” to the U.S. economy.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

With the four consecutive rate hikes, the Fed has now raised rates 2.25% with Powell stating that this is “no place to stop or pause.”

This sent the market into a tailspin after a brief bounce leading into Friday, and now has many investors, myself included, wondering what comes next?

Well, we can deconstruct what has happened in order to decide what may come next. First, the Fed has made its inventions known that they will continue to crank up interest rates, even if it means “some pain.” Whenever the Fed comes out and says it will continue this hardline approach, the market responds, usually negatively.

So we can reasonably assume that whenever the Fed speaks on these issues, the market might take a tumble as investors are spooked by this gloomy outlook. However, what happens in between each announcement? Coin toss really, the market has recovered some of its losses on the year only to pause and reverse course on a dime.

This is why we introduced the idea of downside protection, especially in a volatile market like this one. Some may be thinking that they will just start to take money out of the market, but we know this isn’t the wisest decision. So how do we keep our money in the market, while also protecting your capital? Well, I’ll show you…

Shorting a weak market is just one of the many strategies to protect yourself from a market pullback, especially when one can occur seemingly out of the blue. Or worse, in the middle of a rally.

We need to be vigilant as investors, employing new strategies when the market decides to move in ways we may not have been expecting. Reminds me of the old saying, “always expect the unexpected.”

ETFs that short the market or a certain sector allow you to keep some skin in the game, but instead of watching your positions go lower and lower, these “short” ETFs can allow you to employ cash you have on hand to actually make money in a falling market. This isn’t like buying put options where you have to worry about day decay, these are positions you can buy at the beginning of a downtrend and sell when the down move has occurred.

Keep this strategy in mind whenever you sense dark clouds ahead.

Today’s feature: Shorting The Market

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Disclaimer: All investment entails inherent risk. MPower research is not meant for investment purposes. All final investment decisions are yours and as a result you could make or lose money. MPower, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed. MPower, its employees and/or affiliates do not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of MPower sit on the Board of Directors of any covered company. MPower is not a broker/dealer, and the firm does not underwrite securities, manage assets or perform investment banking activities. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security.