Bull and bear ETFs have shown immense potential this month as abrupt changes in sentiments have raised the appeal for these products. A bull ETF makes money in an upward market while a bear ETF gains when the market goes down. These products create a long/short position with a leveraged factor (i.e. 2x or 3x) in the underlying index through the use of swaps, options, future contracts and other financial instruments.
Wall Street is caught in a bull bear tug-of-war this month. Bears were fierce in early March on Trump’s steel and aluminum imports tariff news that spooked markets, flaring up inflation fears and threats of a trade war. Then faster-than-expected rates hike and the Facebook (FB – Free Report) led tech selloff continued to prompt bears.
The last week’s selloff following Trump’s intention to impose a tariff of up to $60 billion on Chinese imports added to the woes. In response, China prepared for retaliation with a proposed list of 128 U.S. products worth $3 billion. This fear seems to have abated as both the United States and China have started negotiating to improve American access to Chinese markets. The news send the bulls roaring and resume a rally. In fact, the S&P 500 and the Dow Jones have recorded their largest one-day gain since the summer of 2015.
Additionally, the bullish long-term fundamentals, which include strong corporate earnings, optimism surrounding Trump’s tax cut policies, pick-up in growth in developed and developing economies, robust job gains, growing wages, increasing consumer spending, a recovering housing market and a record level of consumer confidence, are continuously driving the nine-year bulls.
Based on the above discussion, we have highlighted the performance of the bull and bear ETFs from the hot zones that have grabbed headlines this month.
After the worst week in two years, the Dow Jones Industrials Average logged its biggest one-day gain in about a decade on Monday trading session. Bear ETFs ProShares UltraShort Dow 30 (DXD – Free Report) and ProShares UltraPro Short Dow30 (SDOW – Free Report) have overtaken the bull ETFs this month. But their close race will likely continue in the coming weeks given that volatility is showing no sign of abating.