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Inverse ETFs Gain on Powell's Economic Warning

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U.S. Federal Reserve Chair Jerome Powell warned on May 13 of the threat of a long-drawn recession resulting from the coronavirus outbreak and urged Congress and the White House to act further to counter the lasting adverse economic impact. The outlook has been described by Powell as “highly uncertain and subject to significant downside risks,” as quoted on The Wall Street Journal.

Also, Robert S. Kaplan, the Dallas Fed president, said lately that the economy “may well” need more government help if the unemployment rate continues to rise, and Neel Kashkari, the president of the Minneapolis Fed, has said the consequence of the pandemic could last for years and evicted workers will probably need more aid to sustain themselves.

Powell spoke a day after House Speaker Nancy Pelosi, a California Democrat, proposed a $3 trillion financial package that would direct money to small businesses, state and local governments, and other struggling institutions. If this was not enough, the director of the National Institute of Allergy and Infectious Diseases Fauci said U.S. reopening could trigger the outbreak.

Following the remarks, Wall Street, which has been pretty resilient to the coronavirus scare since late March, suffered a bloodbath on May 13. SPDR S&P 500 ETF Trust (SPY - Free Report) (down 1.8%), SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) (down 2.23%), Invesco QQQ Trust (QQQ - Free Report) (down 1.25%) and iShares Russell 2000 ETF (IWM - Free Report) (3.43%) lost heavily on the day. Volatility-measuring productiPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) added about 10.5%.

Against this backdrop, we highlight a few inverse ETF areas that gained considerably on May 13 and may be in the spotlight if the sell-off lingers (see all Inverse Equity ETFs here).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF (SH - Free Report) gaining 1.7% and Direxion Daily S&P 500 Bear 1X Shares (SPDN - Free Report) rising 1.7% on May 13.

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 (DOG - Free Report) (up 2.2%) and ProShares UltraShort Dow30 DXD (up 4.4%).

Small-Cap

One can short small-cap U.S. equities with ProShares Short Russell2000 (RWM - Free Report) (up 3.4%).

Financials

Since prolonged economic weakness can weigh on banks materially, the banking sector was hurt badly on May 13. SPDR S&P Bank ETF (KBE - Free Report) lost 5.3% while inverse financial ETF ProShares Short Financials ETF (SEF - Free Report) gained about 3.1% on the day.

Nasdaq

The Nasdaq is the best positioned in the space as coronavirus outbreak has brightened the demand for the tech sector. Still, the index lost on May 13 and inverse Nasdaq ETFs like ProShares Short QQQ (PSQ - Free Report) and ProShares UltraShort QQQ QID) gained 1.2% and 2.5%, respectively.

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