The number of bankruptcy filings have already reached their previous peak from the 2008 financial crisis, and subprime auto loans are experiencing alarming delinquency rates. More than any time in the last 15 years, people are struggling to pay their bills. Maybe you’re overtly bearish, or you just want to be ready when the stock market begins an unmistakable decline. In that case, consider ProShares Short Russell2000 (RWM), suggests Crista Huff, portfolio manager at Freedom Capital Management.
Think about it: The most inflated of the 21 line items in the November Consumer Price Index (CPI) were housing and transportation, up 6.5% and 10.1% respectively in the last 12 months. These are expenses that affect just about everyone!
If people can’t pay their bills because of higher costs, they certainly can’t be buying cars and refrigerators and Apple (AAPL) products. Yes, yes, some of the people we know are doing fine financially. But a higher and higher percentage of them are not doing well at all.
That means they’ll be spending less money at Target (TGT) and RH (RH). Consequently, corporations will be reporting lower quarterly revenues than in recent years, which goes hand-in-hand with lower earnings per share. Can a record-high stock market be expected to continue climbing when corporate sales and profits are falling? I think not.
That brings me to RWM. It is an inverse ETF that profits when the Russell 2000 Index falls. More specifically, RWM “seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the Russell 2000 Index.”
The Russell 2000 Index is made up of the 2,000 smallest stocks within the Russell 3000 Index. It’s helpful to know that small-cap stocks usually act as a harbinger of near-term market direction. In other words, they lead stocks down during market corrections and they lead stocks up during market recoveries.
Since small-cap stocks tend to be more volatile than mid- and large-cap stocks, tread lightly in this niche investment arena. RWM is a good choice for risk-tolerant investors who like the idea of hedging their portfolio against a prolonged market decline, or more aggressively aim to profit from a market decline.