Dow Jones Drops Another 275 Points on Dimming Trade War Hopes

Chaos has resumed

The well-known fear gauge, the Volatility Index is nearing 20 again, as the Dow sinks another 252 points.  All thanks to the trade war, and further proof of a U.S. economic slowdown.

Hopes for Trade War Talks Dim

Any hopes for a near-term resolution fell to the wayside earlier today.

According to the South China Morning Post, China has toned down its expectations ahead of negotiations later this week.  The U.S. also just expanded its trade blacklist to include some of China’s top AI firms, which upset China and could significantly harm talks.  

China’s foreign ministry is also now expected to retaliate following the blacklist expansion. 

Unfortunately, the closer we get to October 15, 2019, the closer we get to the U.S. increasing tariffs on $250 billion worth of goods.  Should the meetings fail this week, tariffs will increase from 25% to 30%.  

Further Signs of Slowing Economic Growth

Not only did ISM data point to slowing growth, but private sector jobs growth is slowing.  In addition, while the services sector did expand in September, it did so at a much slower pace than expected, according to the ISM Non-Manufacturing Index.  The closely watched number just fell to 52.6, which is less than the expected 55.3. 

September’s Producer Price Index (PPI) was also disappointing.

In fact, it unexpectedly fell 0.3% last month, weighed down by increases in the costs of goods and services.  That was the biggest decline since January 2019. This latest news could give the Federal Reserve even more ammunition to cut interest rates again this month.

To protect their portfolios from incessant volatility, investors have been turning to:

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. 

VelocityShares Daily 2x VIX Short-Term ETN (TVIX)

This ETF  tracks an index of futures contracts on the S&P 500 VIX Short-Term Futures Index. 

iPath S&P 500 VIX Short-Term Futures (VXX)

The VXX ETN, which provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return.  In simple terms, as volatility shoots higher, so does the VXX.