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Profit From These ETFs if Market Turmoil Heightens

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After a good start to April, the global stock market stumbled on fresh trade tensions between the United States and European Union, and a cut in global outlook by the International Monetary Fund. Notably, the S&P 500 Index snapped the longest winning streak in years.

Trump is seeking to slap tariff on European goods as indicated by his tweet: “The World Trade Organization finds that the European Union subsidies to Airbus have adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!” U.S. tariffs could impact anything from helicopters, salmon, yogurt, butter and cheese. The EU has also hinted at retaliation against threats from the United States.

Meanwhile, the International Monetary Fund warned that global growth is slowing more than expected and thus reduced the growth outlook to 3.3% for this year, down 0.2 percentage points from the previous expectation. This is the third cut since October and marks the slowest expansion since 2016. More than two-thirds of the expected slowdown in 2019 is driven by trouble in rich nations. The agency cited a U.S.-China trade war and a potentially disorderly British exit from the European Union as the major overhang on the economy (read: 4 Safe Haven ETFs to Escape Recession Warnings).

Further, expectation for an earnings decline has made investors’ jittery heading into the Q1 earnings season. Per the latest Earnings Trends, earnings growth for Q1 is expected to turn negative for the first time since the second quarter of 2016. Total S&P 500 earnings are expected to decline 4% from the same period last year on 4.6% higher revenues and 100 basis points of compression in net margins. Earnings growth is expected to be negative for 10 of the 16 Zacks sectors, with technology and energy as the biggest drags.  

The combination of these factors will likely block the roads of the decade-old bulls. Moreover, with less than 25 days away to the month of May, investors are expected to turn cautious as seasonality plays a huge role in pushing stocks down for the next six months, as per the old adage “Sell in May and Go Away.” According to this investment saying, the stock market has a long history of weak performance during the summer months (May to October).

Against this backdrop, investors could stash their cash in the following ETFs that offer stability or even profit (read: 5 Amazing ETF Strategies for Q2):

SPDR Gold Trust ETF (GLD - Free Report)

Gold is often viewed as a store of value and hedge against market turmoil. A product tracking this bullion like GLD could be an interesting pick in the current market turmoil. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $31.8 billion and heavy volume of nearly 8.8 million shares a day. It charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The ETF gained 0.5% in yesterday’s trading session.

iShares 20+ Year Treasury Bond ETF (TLT - Free Report)

The products tracking the long end of the yield curve often provide a safe haven. TLT provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index. It is one of the most popular and liquid ETFs in the bond space with AUM of $10.6 billion and average daily volume of about 8.8 million shares. Expense ratio comes in at 0.15%. Holding 34 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 25.40 years and effective duration of 17.45 years. The fund added 0.3% in yesterday’s trading session and has a Zacks ETF Rank #3 with a High risk outlook (read: Why Should You Buy Treasury ETFs Now?).

Invesco CurrencyShares Japanese Yen Trust (FXY - Free Report)

Yen is considered a safe-haven currency in times of uncertainty. Investors could tap this via FXY, which appears as a great way to play a future rise in the yen relative to the U.S. dollar. It tracks the movement of the yen relative to the U.S. dollar, net of the Trust expenses, which are expected to be paid from the interest earned on the deposited Japanese yen. The fund charges 40 bps a year in fees and sees a good volume of roughly 195,000 shares per day. The product has accumulated $174.9 million in its asset base and has a Zacks ETF Rank #3 with a Medium risk outlook. It was up 0.3% in yesterday’s trading session.

iPath Series B S&P 500 VIX Short-Term Futures ETN

The VIX is often known as the fear index as it surges when investors are skittish about the market’s current direction. Obviously, this is the case right now and the ETN tracking this benchmark gained in the last trading session. VXXB is up 3.5% and a very liquid choice for traders seeking to make a bet on the fear levels in the market. The note is linked to the performance of the S&P 500 VIX Short-Term Futures Index Total Return, which provides access to equity market volatility through CBOE Volatility Index futures. VXXB sees a truly impressive average volume of about 10.6 million shares a day and charges 89 bps in fees per year (read: Volatility ETFs Jump on Global Growth Concerns).

ProShares UltraPro Short S&P500 (SPXU - Free Report)

For investors seeking to make an outright bet against the American stocks, an inverse ETF could be the way to go. SPXU offers three times (300%) the inverse (opposite) of the daily performance of the S&P 500 Index. The ETF gained 1.7% in yesterday’s trading session and has AUM of $483.6 million. It charges 91 bps in annual fees. While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect (read: Inverse & Leveraged ETFs: What Investors Need to Know).

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