Inverse and equal-weighted ETFs are lackluster, with historical low volatility, as the US stock market refuses to "question"!

As US stocks rise higher, some are more eager to short.

This week, the expectation of a rate cut by the Federal Reserve in the US has cooled down again. Given the strong manufacturing data in May in the US and the continued decline in initial jobless claims, Goldman Sachs predicts that the timing of the first rate cut by the Federal Reserve will be postponed from July to September.

As the "overvalued" US stocks continue to rise, stock players continue to play and dance.

But those who shorted US stocks suffered heavy losses.

For example, the ETF that bets against the Nasdaq, ProShares UltraPro Short QQQ (code: SQQQ), lost nearly 20% in May alone, with a cumulative loss of over 27% for the year.

SQQQ is a triple-leveraged ETF that bets on the decline of the Nasdaq 100 index. It attracted $500 million in funds at the beginning of this month. Investors profit when the Nasdaq falls, and lose when it rises.

There is another group of people who bet on the increase in US stock volatility, and they also suffered heavy losses.

For instance, the ETF UVIX, which is a double-leveraged long VIX futures ETF, lost 33% in May alone, with a cumulative loss of 55% for the year.

This is because the recent bond volatility has remained at the lowest level in two years. The Cboe Volatility Index (VIX) fell below 12 points this week, and market volatility is even approaching the low levels of 2019.

Investors who bought SQQQ and UVIX are essentially gambling against the one-way rise in US stocks, adopting a defensive hedging strategy. However, they never expected that Nvidia's explosive new financial report would help the Nasdaq rise for the fifth consecutive week. The fervor of US stock investors has taught them a good lesson.

Painful, what a painful realization.

This story tells you that in the investment world, don't be stubborn and bet against the winners who follow the trend.

Alex Saunders, head of the quantitative macro team at Citigroup Research, said, "Although some economic data is weak, it is still too early to consider defensive trading strategies. The Fed's rate cut expectations this year are still working, which can reduce the risk of a pullback in US stocks. The market's preference for technology stocks and sectors makes sense."

In fact, investors who adopt defensive strategies have no major problems. They are trying their best to hedge against the risks of an economic downturn. It's just that the situation is stronger than people. Many investors who have taken bearish options and high volatility strategies will have to start thinking of other ways.

For example, some investors have been shorting US regional bank stocks, small-cap stocks, and retail stocks since last year, as the economic cooling will first hit these areas This strategy worked well during the stock market pullback last summer, but it hasn't been as effective this year. Surprisingly, sectors sensitive to the economy have performed well this year. In addition, the short squeeze of meme stocks in May caused even short sellers of small-cap stocks to suffer significant losses.

Charlie McElligott, a derivatives strategist at Nomura Securities, pointed out that buying put options has been very frustrating lately, forcing some investors to resort to simpler hedging tools such as stock index futures and ETFs. Although futures and ETFs offer less leverage and opportunities for fine-tuning positions compared to options, at least their value does not slowly decrease every month.

"While the holding period for most futures positions is 'extremely short,' futures are now the preferred hedging tool for hedge funds, as options are 'dead'."