Short Small-Cap ETFs As U.S. May Face Technical Recession
Zacks Investment Research | Mar 16, 2020 02:30AM ET
Just as the coronavirus-induced global market selloffs started, the pain for already-struggling U.S. small-cap stocks aggravated. U.S. Small-cap ETF iShares Russell 2000 ETF Investors Love These ETF Areas Amid Virus-Led Bear Market ).
U.S. May Face Technical Recession in First-Half 2020
With people on quarantine and activities slowly coming to a halt, recession fears are tightening its grip on markets.The absence of goods and services amid the virus-led decline in productivity, city lockdowns, factory shutdowns, restrictions on travel and cancellation of events are naturally hurting concerned economies.
President Trump has now declared a national emergency, which intensifies worries for U.S. small-caps as these are more dependent on the domestic economy. The United States has more than 1,600 confirmed cases currently.
Sensing the severity of the situation, J.P. Morgan recently moved away from its earlier view and has projected a coronavirus-driven recession in the United States. The bank said its views of the coronavirus outbreak "have evolved dramatically in recent weeks ." JPMorgan economists now expect U.S. GDP to contract by 2% in the first quarter and 3% in the second.
JPMorgan Chase (NYSE:JPM) earlier believed that “sequential decline in GDP for two quarters in a row.
TS Lombard forecasts a “major recession” globally. Goldman Sachs (NYSE:GS) warns U.S. markets will encounter a Is the Acute ETF & Stock Selloff an 'Overreaction' or Justified? ).
Moreover, the earnings picture is grimmer for small caps as depicted by the S&P 600 than the large caps. For first-quarter 2020, the S&P 500 is expected to report a 1.4% decline in earnings (excluding the impact of financial sector, the rate of decline would be 1.5%), per the Earnings Trends issued on Mar 12. Meanwhile, S&P 600 companies are likely to report a 4.6% earnings slump for Q1. Excluding the financial sector, S&P 600 may see an earnings recession of 22.4%.
If this was not enough, small-cap stocks are highly volatile in nature and thus susceptible to a steeper crash. So, if the U.S. economy enters into a recession in the coming days, small-cap stocks and ETFs may feel further pain.
Inverse Small-Cap ETFs in Focus
Amid the bloodbath in the small-cap space, inverse small-cap ETFs have gained in the past month. Below we highlight a few winners.
Direxion Daily Small Cap Bear 3X Shares TZA – Up 124.6% in the Past Month
ProShares UltraPro Short Russell2000 SRTY – Up 124.4%
ProShares UltraShort SmallCap600 SDD – Up 86.1%
ProShares UltraShort Russell2000 (TSX:TWM) – Up 78.3%
Get The News You Want
ProShares Short SmallCap600 (TSX:SBB) – Up 33.5%
Proshares Short Russell2000 (PS:RWM) – Up 36.2%
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