The broader indices in recent days have soared to record highs, but underlying the euphoria is growing unease. Not helping matters is the meeting today of the Federal Reserve's Federal Open Market Committee, which is likely to announce a hike in interest rates.
Investors are worried about going "cold turkey" when the Federal Reserve finally removes the opiate of ultra-low interest rates. Meanwhile, stock valuations are at historical extremes in terms of price-to-earnings ratios, dividend yields, book values and projected corporate earnings.
Note this well: The last time the Fed raised rates, on Dec. 15, 2015, the markets plunged by 8% over the next month.
Economic growth seems to be on track, especially in the U.S., but it remains tentative and several potential catalysts (e.g., a terrorist attack, bad news from China, saber rattling from an emboldened Russia, a wave of energy sector debt defaults) could undermine growth and trigger a long overdue correction.
That's why many analysts are turning pessimistic, citing political risks, excessive valuations and insufficient earnings growth. Now's the time to hedge your portfolio.
Below are six "inverse" exchange-traded funds that could make you a fortune while other investors are getting wiped out.
First, let's examine the multiplying dangers.
On the calendar for Jan. 20 is the inauguration of Donald J. Trump, a divisive figure who lost the popular vote by more than 2.8 million ballots. Massive protests are planned in Washington for Jan. 21.
Many investors love the market-oriented Trump, as witnessed by the postelection rally. Others loathe and fear him. In fact, the nation's mental health professionals are reporting the rise of a phenomenon they're calling "Trump Syndrome," which is heightened anxiety among patients caused by Trump's rise to power.
Whatever camp you're in, you should fasten your seat belts for a bumpy four years. If the market crashes in 2017, as many analysts now predict, you can make a killing by purchasing inverse ETFs that essentially sell short specific market indices. When the market falls, inverse ETFs rise in value.
Through the following inverse ETFs, you can precisely customize your shorting strategy. Each fund is extremely liquid, for easy entry and exit. To minimize risk, we kept our basket of inverse ETFs to one-time (1X), as opposed to more aggressive and riskier 2X and 3X inverse ETFs. The respective benchmark index is listed to the right:
Keep in mind, these ETFs aren't suitable buy-and-hold, long-term investments. Think of them as trading vehicles to capitalize on temporary market imbalances.
If you're undecided about which inverse ETF to choose, consider the ProShares Short S&P 500. With net assets under management of $2 billion, the fund is a market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts. As such, it's a broad way to simply short the S&P 500 as a whole. The expense ratio is 0.89%, reasonable for its class.
A blistering financial storm is about to hit our shores. When it hits, weak companies and their investors will be washed away. You need to put yourself on solid ground. And that doesn't just mean changing your investment allocations or loading up on cash. I'll show you how to protect yourself and prosper when you click here.
John Persinos is an investment analyst at Investing Daily. At the time of publication, he owned none of the stocks or ETFs mentioned. Persinos appears as a regular commentator on the financial television show "Small Cap Nation." Follow him on Twitter.