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Fed & Trade Trigger Market Bloodbath: 6 Hot Inverse ETF Areas

Sanghamitra Saha

Wall Street, which had a pretty strong June and July, was hit by a less dovish Fed outlook and renewed trade tensions to start August. At July-end, the Fed cut rates but offered a slightly hawkish guidance saying that was simply a “midcycle adjustment” and that the committee does not see clear economic weakness that would require any longer rate-cutting cycle. The Fed also announced plans to end the normalization of balance sheet two months earlier than previously expected. Wall Street primarily slumped post Fed meeting.

If this was not enough, Donald Trump announced on Aug 1 a surprise decision to heighten the trade war with a levy of 10% tariffs on another $300 billion of Chinese goods, sending shockwaves across the global markets. After market close on Aug 1, the president said the new round of tariffs could be increased beyond 25%.

The net impact is that the S&P 500 recorded the largest two-day decline since May. Volatility product iPath Series B S&P 500 VIX Short-Term Futures ETN VXX jumped 13.9% on Jul 31. The S&P-based fund SPDR S&P 500 ETF SPY lost 2.2% in the past two days. SPDR Dow Jones Industrial Average ETF DIA was off 2.24%. Nasdaq-100 ETF Invesco QQQ Trust QQQ lost 1.9% in the last two days (as of Aug 1, 2019).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF SH) (up 2.1% in the past two days) and Direxion Daily S&P 500 Bear 1X Shares (SPDN) (up 1.9% during this phase).

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Dow Jones

Dow Jones is an extremely trade-sensitive index. So,investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 DOG) (up 2.3% in past sessions), ProShares UltraShort Dow30 DXD (up 4.7% in the past two days) and ProShares UltraPro Short Dow30 SDOW) (up 7.1% on the past two days) (read: 4 Reasons That Led Dow Jones to 27,000: ETFs in Focus).

Nasdaq

ProShares Short QQQ PSQ (up about 2% in the past two days), ProShares UltraShort QQQ QID (up about 4% in the past two sessions) and ProShares UltraPro Short QQQ SQQQ (up 5.8% in the past two sessions) are good to play against the Nasdaq.

Semiconductor

U.S. semiconductor companies have huge revenue exposure to China, making the sector susceptible to U.S.-China trade relation. While regular semiconductor ETF iShares PHLX Semiconductor ETF SOXX dived 2.3% in the past two days (as of Aug 1) on some weak earnings releases and Fed as well as trade shocks, inverse semiconductor ETFs Direxion Daily Semiconductor Bear 3x Shares (SOXS) and ProShares UltraShort Semiconductors (SSG) gained 16.4% and 10.4% in the past two days, respectively.

China

Obviously, things will be unsteady in China given trade tensions. iShares MSCI China ETF MCHI and Xtrackers Harvest CSI 300 China A-Shares ETF ASHR lost about 3.1% and 3.6% on Jul 31. So, some of the China-related inverse plays are Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD (up 4.5% in the past two days), Direxion Daily FTSE China 3x Bear Shares YANG (up 11.5%), ProShares UltraShort FTSE China 50 FXP (up 7.5%) and ProShares Short FTSE China 50 YXI (up 3.7%) (read: Will China ETFs Survive the Moving Out of US Firms?).

Emerging Markets

As the Fed outlook has been perceived as dovish initially, the U.S. dollar gained strength and emerging markets fell. Plus, the recent flare-up in the U.S.-China trade tensions made the space particularly edgy.iShares MSCI Emerging Markets ETF EEM retreated about 3.2% in the past two days. As a result, inverse EM fund Direxion Daily MSCI Emerging Markets Bear 3X Shares (EDZ) added 5.9% in the past two days (as of Aug 1, 2019) (read: ETF Asset Report of Second-Quarter 2019).

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SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
iShares MSCI Emerging Markets ETF (EEM): ETF Research Reports
 
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR): ETF Research Reports
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports
 
ProShares UltraPro Short Dow30 (SDOW): ETF Research Reports
 
Proshares Short Dow30 (DOG): ETF Research Reports
 
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports
 
ProShares Short S&P500 (SH): ETF Research Reports
 
iShares MSCI China ETF (MCHI): ETF Research Reports
 
Direxion Daily MSCI Emerging Markets Bear 3x Shares (EDZ): ETF Research Reports
 
Proshares Short QQQ (PSQ): ETF Research Reports
 
Invesco QQQ (QQQ): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD): ETF Research Reports
 
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Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report