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Profit From Market Bloodbath With These Inverse ETFs

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Wall Street, which had a pretty strong third quarter, was hit by rising rate worries on Wednesday. The S&P 500 saw its longest losing streak since 2016 on the day. Investors dumped sizzling tech stocks and sought safety in defensive sectors and companies. SPDR S&P 500 ETF SPYSPDR Dow Jones Industrial Average ETF (DIA - Free Report) and Invesco QQQ Trust QQQ lost about 3.2%, 3.1% and 4.4%, on Oct 10.

Benchmark U.S. Treasury yield was 3.22% on Oct 10, up from 2.46% recorded at the start of the year. Though trade tensions keep a check on the fast rise of treasury yields in the July-August period, yields started trending higher starting mid-September. The yield on the benchmark two-year note hit as high as 2.906% during early trading on Wednesday, marking its highest level since Jun 25, 2008.

Investors view the uptick in inflation as the reason for the Fed’s hawkish stance. If the Fed enacts faster-than-expected rate hikes in the coming days, rates will go higher. The gradual end of cheap money era led to a huge selloff in the equity market. Investors should also note that if inflation keeps rising, the real return of an asset will decline.

To add to the woes, the International Monetary Fund (IMF) lowered its global growth forecasts on concerns between the United States and its trading partners. The IMF now expects the global economy to expand 3.7% this year and next year — down 0.2 percentage points from the previous forecast.

The Chinese market has witnessed a bloodbath as well. China's central bank has been permitting the gradual weakening of yuan, “breaking the psychological 6.9000 barrier and leading speculators to push the dollar up to 6.9380”, per economictimes.

How to Profit

Given the upheaval, investors could easily tap the opportunity by going short on global equities, at least for the near term. Below we highlight a few of them.

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 (DOG(up 3.1% on Oct 10), ProShares UltraShort Dow30 (DXD) (up 6.2% on Oct 10) and ProShares UltraPro Short Dow30 (SDOW(up 9.2% on Oct 10).


Obviously, things will be unsteady in China given the trade tensions. The Shanghai Composite Index is on the way to see its steepest decline since February 2016. Some of the China-related inverse plays are Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD(up 2.5% on Oct 10), Direxion Daily FTSE China 3x Bear Shares (YANG(up 7.6%), ProShares UltraShort FTSE China 50 (FXP(up 4.8%) and ProShares Short FTSE China 50 (YXI (up 2.5%) (read: China Cuts Rate for Fourth Time: ETFs in Focus).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF (SH(up 3.2% on Oct 10) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 3.4% on Oct 10) (read: 5 Inverse ETFs to Make a Fast Buck on Flaring Trade Tension). 


Technology stocks were hit on Wednesday, logging their worst day in more than seven years, as companies that were accused of overvaluation concerns apparently lost the maximum in the broad-based selloff. ProShares UltraShort Technology REW jumped about 9.7% on Oct 10.


ProShares Short QQQ PSQ (up 4.4% on Oct 10), ProShares UltraShort QQQ (QID(up 8.7% on Oct 10) and ProShares UltraPro Short QQQ SQQQ (up 13.1% on Oct 10) are good to play against the Nasdaq.


One can short small-cap U.S. equities with ProShares Short Russell2000 (RWM) (up 2.8% on Oct 10).


ProShares Short MSCI EAFE (EFZ) (up 2.2% on Oct 10) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the global trade fear.

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