The Economic Reality Made Bleak by the Coronavirus

The economic numbers are bleak.

Just yesterday, we learned U.S. GDP contracted at an annualized rate of 4.8%.  Economists were only expecting a decline of 3.9%. Going forward, it could contract by as much as 25%, with some forecasts calling for a 40% fall. 

According to the U.S. Bureau of Economic Analysis (BEA), “The decline in first quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued ‘stay-at-home’ orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending.”

Unfortunately, second quarter numbers could be far more depressing.  White House economic adviser Kevin Hassett said we could see a 20% to 30% decline, as highlighted by Daily Mail.  

“They’re going to be the worst in our lifetime,” added Dan North, chief economist for the credit insurance company Euler Hermes North America, said as quoted by MSN. “They’re going to be the worst in the post-World War II era.”

This morning, we learned that U.S. weekly jobless claims hit 3.84 million, which pushes us above 30 million over the last six weeks.  Economists were only looking for a loss of 3.5 million.  

“Federal Reserve Chairman Jerome Powell added the unemployment rate is likely to rise above 10% from the March level of 4.4% which counted a period before the intense social distancing policies went into effect,” says CNBC.

Should we see further fallout in the markets, one of the best ways to prepare is by hedging for volatility.  Three ways to do that include:

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

As volatility ticks higher with the trade war, ETFs such as the UVXY could run even higher from a current low of $30 a share.  . 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)

The TVIX is another great way to trade elevated volatility.  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)

As volatility returns to the markets, one of the best ways to profit from volatility is with the VXX ETN, which provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return.