So far, it has been a strange year for major stock market indices, particularly the US stock market. Following a positive beginning of the year, the S&P 500 fell 33% in just 5 weeks during the Covid-19 pandemic and then rallied all the way back. At the time of writing, the S&P 500 year-to-date return stands at 3.74%.
There’s almost a feeling that it has some catching up to do. Stock indices tend to move together and have a positive correlation with the exception of some cases. But in 2020, the story is different. Most stock indices are trading in a bear territory since the beginning of 2020, presenting a negative YTD return except three major indices – the S&P 500, NASDAQ100, and the Dow Jones 30. Now, it is possible that there’s something we don’t know here but nonetheless, the US market must follow the global trend at some point. Let’s take a look at the YTD return of some of the leading global stock indices as of 2020.
|Germany DAX 30||-3.56%|
|United Kingdom FTSE100||-21.86%|
|Italy FTSE MIB||-19.30%|
|Euro Stoxx 50||-14.17%|
|Australia S&P/ASX 200||-12.99%|
Now, the largest US stock indices are so far having a remarkable year in terms of performance. The NASDAQ100 gained 23.55% as of the end of September. The S&P 500 and the Dow Jones 30 are more modest with a positive Year-To-Date return of 3.24% and -3.80% respectively.
Will the US Stock Market Crash Soon?
Year to Date (YTD) is useful for analyzing trends of different stock markets and comparing performance data to other indices. It is a good indication but we have to wait and see. After all, it not an easy thing to predict a stock market crash.
The thing is that the Coronavirus has had a significant impact on the US economy. Remember, the gross domestic product (GDP) decreased at an annual rate of 31.7% in the second quarter of 2020. The annual growth in 2020 is expected to be around -3.8. In fact, the United States is one of the most Covid-19 affected countries, according to KFF.
So why the US stock keeps heading higher? Two things, in my opinion. The first, near-zero interest rates. Money has legs and should always be on the move and as such, the stock market is the best place to be at the moment, at least for hedge funds and large financial institutions.
Second, technology companies. It appears that the value of data can be tremendous. Most of the largest tech companies are listed in the US – Tesla, Google, Amazon, Facebook – these stocks constantly push the market higher.
Nevertheless, October is a sensitive time for the stock markets. The US elections are just around the corner and it’s very hard to see the US stock market keeps going up. Just keep an eye.
How to Short the US Stock Market?
So, here’s the thing. A lot of people don’t really know that you can short the market, meaning make a profit when stock prices drop. Others know that it’s possible but not sure how exactly to do that. Essentially, there are four ways to do that – ETFs, options, futures, and CFDs.
The easiest and safest way of all is to buy an ETF. Some of the most liquid and traded short market ETFs include ProShares UltraShort QQQ (QID), ProShares UltraPro Short QQQ (SQQQ), ProShares Short QQQ (PSQ), ProShares UltraPro Short S&P500 (SPXU), and UltraShort Dow30 (DXD).
The second method is to buy put options on one of the US indices. Note that there are no options on US indices so you’ll have to find call and put options on an ETF such as SPY, or Invesco QQQ Trust. You can find some of these S&P 500 options here and NASDAQ100 options here.
Finally, you can short the market via futures or CFDs. These are two forms of a speculative agreement. But… futures are very expensive which means you’ll have to make a large investment and open an account with a futures brokerage firm, which is kind of a hassle. CFDs can be highly profitable but very risky so you may lose your money in a second.
The opinion provided is informational only, not individual investment advice or recommendations.