How to prepare for a declining US economy
Subscribe to enjoy similar stories. It’s time to hedge America. Even though President Donald Trump has declared that April 2 will be America’s Liberation Day, stock investors may reach a different conclusion.
Despite the stock market’s recently constructive behavior after some soul-searching weakness, the president’s expected revelation of country-level tariffs is prompting some investors to prepare for the U.S. economy to decline. Bearish signals are evident in options on the iShares Russell 2000 exchange-traded fund, a proxy for America’s economy.
The fund’s small-capitalization stocks earn most, if not all, of their revenue from U.S. sales. Investors have recently begun buying bearish puts on the ETF in anticipation that stock prices will decline and put prices will increase.
This is a hard shift from the recent trend of buying bullish calls in anticipation that Trump’s policies would boost American-centric companies. The shift emerged after the recent Federal Reserve meeting. The central bank confirmed plans to lower interest rates twice this year, which is good for stocks, but Chairman Jerome Powell startled investors.
He expressed concerns about the economic impact of tariffs. Uncertainty from the world’s most powerful banker likely bodes ill for everyone else, which explains the sudden interest in hedging. With the iShares Russell 2000 ETF at $207.81, investors can buy the April $202 put and sell the April $192 put.
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