Market volatility is far from over, as investors continue to navigate shifting risks, ranging from bouts of rising geopolitical tensions stemming from the Middle East conflict to persistent weakness in the technology sector.
In such an environment, a tactical approach could allow investors to adapt to changing conditions and capitalize on short-term opportunities rather than relying solely on longer-term market trends. At the same time, uncertainty surrounding the Fed’s future rate path and the trajectory of inflation is making it increasingly difficult to predict the market’s next major move, further strengthening the case for tactical investing.
Any policy move that differs from market expectations could trigger heightened volatility. Whether the Fed adopts a more hawkish stance or keeps interest rates unchanged will ultimately depend on incoming economic data, leaving investors to navigate an environment of persistent uncertainty.
Positioning for Near-Term Market Moves With Tactical Investing
For investors seeking short-term tactical exposure in today’s market, the following ETFs and investment themes may be worth considering. These strategies offer different ways to play for near-term market moves, from hedging against potential volatility to capitalizing on momentum and pursuing high-risk, high-reward opportunities.
Given the current macroeconomic backdrop, forecasting long-term market trends has become increasingly challenging as investors navigate shifting monetary policy, geopolitical risks and evolving economic data. In such an environment, focusing on shorter-term opportunities and adapting to changing market conditions could prove more rewarding, making a tactical approach increasingly attractive.
However, short-term tactical strategies are not a “set-it-and-forget-it” approach. Tactical strategies are generally better suited for investors with a higher risk tolerance who actively monitor market developments and are prepared to adjust their positions as conditions evolve.
Leveraged Tech ETFs
For investors with greater risk tolerance, leveraged ETFs could offer an opportunity to magnify bullish bets and capitalize on short-term market momentum, particularly in high-conviction themes and fast-moving sectors.
That said, leveraged ETFs are best suited for short-term tactical positioning, as their amplified return potential also comes with heightened volatility. Given these risks, leveraged ETFs are typically more appropriate for experienced and risk-tolerant investors who actively monitor market movements and understand the complexities associated with leveraged investing.
Although uncertainty surrounding the AI trade and broader technology sector has increased, the long-term growth prospects for the theme still remain promising. This makes leveraged tech ETFs a potential tactical play for investors seeking high-risk, high-reward opportunities to capitalize on AI’s growth without making a sizable long-term allocation to the theme.
With the Nasdaq Composite gaining around 4.9% over the past five trading sessions and nearly 3% over the past month, momentum in the technology sector appears to remain intact despite bouts of volatility.
Investors can consider leveraged funds like ProShares UltraPro QQQ TQQQ and ProShares Ultra QQQ QLD. Both funds track the Nasdaq-100 Index, with TQQQ seeking to deliver three times and QLD twice the index’s daily performance.
With a one-month average trading volume of 65.73 million shares, TQQQ is the most liquid option, offering investors easier entry and exit, making it well-suited for tactical positioning and short-term hedging strategies in the current volatile economic backdrop. Regarding charging annual fees, TQQQ is also the cheapest option, charging 0.82%.
Energy ETFs
Persistent ambiguity surrounding diplomatic developments between Washington and Tehran remains a headwind for the geopolitical landscape and broader markets. However, oil prices emerge as a beneficiary of renewed tensions, making energy ETFs an attractive tactical play.
While oil prices remain well below the highs reached during the peak of the conflict and investors appear to be somewhat shrugging off geopolitical risks, renewed uncertainty could still push crude prices higher, although likely not enough to support a strong long-term case for energy exposure.
Instead, tactical positioning in energy ETFs could offer investors an opportunity to capitalize on potential short-term gains in oil prices. Given the way the ceasefire has unfolded so far, tensions in the Middle East are likely to remain a key market consideration, keeping the potential for periodic spikes in crude prices alive.
The U.S. benchmark, West Texas Intermediate (WTI) crude, is trading around $79.3 per barrel and has gained approximately 3.9% over the past five trading sessions and nearly 9% over the past month. Meanwhile, the global benchmark, Brent crude, has posted slightly stronger gains. Trading around $84.7 per barrel, Brent has risen about 4.9% over the past five trading sessions and roughly 9.7% over the past month.
Investors can consider State Street Energy Select Sector SPDR ETF XLE and Vanguard Energy ETF VDE. XLE and VDE have a Zacks ETF Rank #1 (Strong Buy). Regarding charging annual fees, XLE is the cheapest option, charging 0.08%, while also being the more liquid option between the two, with an average one-month trading volume of 30.35 million shares.
Volatility ETFs
The fragile ceasefire between Washington and Tehran, coupled with lingering diplomatic uncertainty and continued back-and-forth between the two sides, is keeping geopolitical risks elevated. The Middle East remains caught between retaliatory strikes and diplomacy, with a clear path toward lasting stability still evading the region.
Against this backdrop, increasing exposure to volatility ETFs could offer a tactical opportunity for investors seeking to hedge against potential market swings and navigate heightened uncertainty, particularly in an increasingly headline-driven market where investors may be more inclined to make short-term moves.
These funds have delivered short-term gains during periods of market chaos and may climb further if volatility continues. These funds have historically performed well during periods of market stress and could continue to gain if volatility remains elevated.
Volatility ETFs are a compelling tool for managing near-term risks and increasing exposure to these funds in the short term can be a winning move for investors. Investors can consider iPath Series B S&P 500 VIX Short-Term Futures ETN VXX and ProShares VIX Short-Term Futures ETF VIXY.
With a one-month average trading volume of 7.94 million shares, VXX is the most liquid option between the two. Regarding annual fees, VIXY is the cheapest option, charging 0.85%.
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