Stocks continued to struggle on Friday, making inverse ETFs a solid play recently, as investors digested a challenging week of trading that included a spike in coronavirus cases globally, a breakdown in fiscal stimulus talks, and a contentious upcoming presidential election.
“Massive policy stimulus, positive medical developments and high hopes for a return to pre-pandemic economic activity levels have provided a solid boost to equity markets,” strategists at MRB Partners wrote in a note. “However, mounting new economic restrictions, particularly in Europe, despite being forecastable and in lagged response to the re-acceleration in COVID-19 infections, only caught investors’ attention this week, triggering sharp losses.”
While major stock index ETFs like the SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and the Invesco QQQ Trust (QQQ) lost considerable ground on the week however, inverse ETFs investors were rewarded for their allocations.
The ProShares Short S&P 500 (SH) gained almost 1% Friday, and even more throughout the week, while the other major indexes plummeted. Another highly leveraged ETF for savvy investors, the Direxion Daily S&P 500 Bear 3X Shares (SPXS) rallied 3.40% Friday, catalyzed by its triple leverage.
Traders and investors had been confident that a stimulus deal would come to fruition prior to the election, as some recent data reveals that the economic recovery could suffer without more support. A lack of a deal has helped to drive markets lower, bolstering inverse ETFs as a consequence.
Meanwhile, more volatility is likely in store for investors, and with data compiled by RealClearPolitics revealing that former Vice President Joe Biden is maintaining an average lead more than 7 percentage points over President Donald Trump, some financial pundits are noticing concern amongst market participants.
Gina Bolvin Bernarduci, President of Bolvin Wealth Management, noted that several of her clients were worried about the election outcome and how it could affect their investments.
“We have had more calls about the election recently than we had during the big sell-off in March,” said Bernarduci. “I think it’s going to be a few volatile days, but there are factors that affect the market more than who wins the election.”
“Investors should also keep in mind what happened four years ago. Everybody thought that if Trump won, that would have been bad for the market, yet we made [more than 100 new highs]in four years,” Bernarduci said.
