If history repeats itself, then investors could be in for a September slowdown, which doesn’t bode well for the bulls, but could offer bearish ETF investors some interesting plays.
Inverted yield curves and the U.S.-China trade war are fueling most of the investors’ worries, which could provide more fodder for a global economic slowdown. A 15% U.S. tariff on $112 billion in Chinese goods officially took effect this past weekend, which effectively adds a tax on over 60 percent of consumer goods from China.
Furthermore, the Dow Jones Industrial Average has lost 0.75 percent in the last 30 years. Per a CNBC report, “September has been a mixed bag for stocks over the past five years. In 2018 and 2017, the S&P 500 has posted returns of 0.4% and 1.9%, respectively. However, the index dropped 2.6% in 2015 and 1.6% in 2014. In 2016, the S&P 500 posted a slight loss. The S&P 500 had a strong September in 2013, rallying nearly 3%.”
“The global macroeconomic picture continues to show fragility,” Katie Nixon, CIO at Northern Trust Wealth Management, wrote in a note. “We expect overall growth to trend lower under the weight of growing trade uncertainty.”
Trading a Downturn or Buying a Dip
Bears can look to ETFs like the Direxion Daily S&P 500 Bear 3X ETF (NYSEArca: SPXS) for potential gains. SPXS seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500® Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.
While equities investors have been rattled by the latest volatility spikes, traders can take advantage of the market oscillations by buying the dips with other leveraged S&P 500 ETFs, such as the following:
- Direxion Daily S&P 500 Bull 2X ETF (NYSEArca: SPUU): SPUU seeks daily investment results equal to 200% of the daily performance of the S&P 500® Index. SPUU invests at least 80% of its net assets in securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
- Direxion Daily S&P500 Bull 3X ETF (NYSEArca: SPXL): SPXL seeks daily investment results, before fees and expenses, of 300% of the daily performance of the S&P 500® Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, exchange-traded funds (“ETFs”) that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
- Direxion Daily S&P 500 Bear 1X ETF (NYSEArca: SPDN): SPDN seeks daily investment results equal to 100% of the inverse of the daily performance of the S&P 500® Index. The fund invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse (opposite) or short exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes).
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