Many believe that we are now in the most-hated bull market ever. Still-lukewarm U.S. economic growth, soft corporate earnings and weaker business investments do not actually justify Wall Street’s bullish run. Basically, it is the Fed’s easy money policy that led stocks to such a high.
The International Monetary Fund (IMF) recently lowered the economic growth projections for the U.S. from 2.2% to 1.6% this year. Growth issues are still rampant in the developed markets. Earnings growth will continue to be negative in the third quarter, though it is on the verge of a rebound (read: 5 ETFs to Bank on as Global Growth Concerns Loom).
Though a still-dovish Fed, an accommodative Bank of Japan and lesser-than-feared impact of Brexit (so far) led to a relief rally initially in Q3, these were not enough for sustained gains. As a result, equities continued to see whimsical trading.
In fact, the presidential election in November, a likely Fed rate hike by the year-end, the start of the Brexit process and uncertainty about the OPEC deal can cause significant volatility in the market ahead (read: How to Trade the Oil Rush with ETFs).
Several Analysts Bearish
Many analysts cautioned about the longevity of this rally. The S&P 500 is trading at over 18 times the estimated earnings, compared with a 15.6 average for the last five years, indicating overvaluation.
Goldman Sachs has long been vocal on this issue. As per the research house, investor enthusiasm peaked and “points to a 2 percent near-term S&P 500 fall." The sentiment indicator, which looks to track the S&P 500 futures positioning, now stands at its maximum level of 100 and thus is due for a reversal (read: ETF Strategies for Q4).
Goldman also believes that corporate buybacks — one of the main factors in pushing up the stocks – will slow down in the second half of 2016, given 15% lower stock repurchase in the third quarter than the prior quarter.
Goldman expects each of the S&P 500 the Stoxx Europe 600 index to slip by about 2% by December. HSBC technician also sees “the possibility of a severe fall in the stock market is now very high.” Goldman is specifically more downbeat on a weaker European economy.
If you are also bearish on the market, you could definitely profit out of these flurry of pessimistic forecasts by going short on those above-mentioned indices. There are a number of inverse or leveraged inverse products in the market that could gain ahead if the broader market falters (read: Believe in George Soros? Short S&P 500 with These ETFs).
ETFs to Play
Short S&P500 ETF (SH - ETF report)
This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index.
Direxion Daily S&P 500 Bear 1x Shares ETF (SPDN - ETF report)
The fund seeks daily investment results of 100% of the inverse (or opposite) of the performance of the S&P 500 Index.
Short Dow30 ETF (DOG - ETF report)
It offers inverse unleveraged exposure to the Dow Jones Industrial Average Index.
Ranger Equity Bear ETF (HDGE - ETF report)
This ETF is active and does not track a benchmark. Its objective is capital appreciation through short sales of domestically traded equity securities.
As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Inverse Equity ETFs here).
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