What are the coping strategies for the epic sell-off in the US stock market?

Epic Sell-off in US Stocks

Last week, due to Trump's "reciprocal tariff" policy, global markets experienced the most severe sell-off since the pandemic in 2020:

• The S&P 500 index fell 10% over two days, marking the fourth time since 1952 (the previous three times: October 1987, November 2008, March 2020);
• Last week, the Dow Jones index dropped 8%, the S&P 500 index fell 9%, and the Nasdaq index decreased by 10%, with a total market value loss of $5 trillion in US stocks;
• The CBOE S&P 500 Volatility Index surged 110% last week to 45, approaching the peak during the continuous circuit breaker in March 2020 and the global decline triggered by yen arbitrage trading in August 2024;
• The CNN Fear & Greed Index rarely fell to 4, indicating extreme market panic;

Insights from Previous US Bear Markets

CICC has summarized that the main triggers for previous US bear markets include four factors: Federal Reserve tightening, deteriorating fundamentals, high valuations, and external shocks.

Hotspot Research has compiled the declines, durations, and triggers of various bear markets in the US stock market (represented by the S&P 500 index) since 1998, as well as the time required to recover to previous highs. Historical data suggests that US stocks seem to always recover from bear markets:

Current Valuation Levels

According to Goldman Sachs, the forward P/E ratio of the S&P 500 index is 20 times, still at the 77th percentile of valuation data over the past 30 years, indicating that valuation levels remain high. The market bottom P/E ratio was 14 times in 2018, 13 times in 2020, and 15 times in 2022.

What Are the Response Strategies?

Investors may have different judgments about the future market; some may believe that high valuations in US stocks support shorting, while others may hope to take advantage of the decline to buy the dip. So how can various trading tools be used to meet different investment strategies?

If You Wish to Short and Hedge

Goldman Sachs data shows that last week, hedge funds net sold global stocks at the highest level since 2010, primarily driven by short selling. US macro products (indices + ETFs) faced the largest nominal short selling in recorded history, with hedge funds actively increasing hedging positions during the market decline.

Applicable trading tools:

• Directly shorting individual US stocks, you can refer to this guide: Longbridge US Stock Short Selling (Margin Trading) Guide;
• Buying individual stocks or inverse ETFs, such as: $Direxion Semicon Bear 3X(SOXS.US), $Proshares UltraPro Short QQQ ETF(SQQQ.US) 、$Pro UltrPro Shrt S&Pro 500(SPXU.US) 、$Pro UltrPro Shrt Dow30(SDOW.US) ；
• Buy panic index ETFs, such as: $Pro Vix Shrt Fut(VIXY.US) 、$2x Long VIX Futures ETF(UVIX.US) ；
• Buy put options on individual stocks or sell call options to hedge long losses；

*For the most comprehensive leveraged inverse ETF hedging tools official stock list, please visit: Hedging Tools

If you want to bottom fish and rebound

According to CMG Venture Group, the annualized return of the S&P 500 index over the past 40 years has reached 11.8%. If investors can capture long-term bottom areas to buy or invest regularly, the annualized return may be higher.

Applicable trading tools:

• Set up a grid bottom-fishing strategy. Investors with limited funds can use fractional shares in U.S. stocks for dollar-cost averaging: [Invest from $1 with fractional shares to easily invest in U.S. stocks](https://longbridge.activity.wbrks.com/pages/longbridge/9485/index.html?app_id=longbridge&org_id=1&account_channel=lb)
• The market quickly rebounded:
  • Buy individual stocks and index leveraged long ETFs, such as: $Direxion Semicon Bull 3X(SOXL.US), $Proshares UltraPro QQQ(TQQQ.US), $Direxion Daily TSLA Bull 2X Shares(TSLL.US), $GraniteShares 2x Long NVDA Daily ETF(NVDL.US), $Direxion FTSE China Bull 3X(YINN.US), etc.;
  • If you believe that the recent S&P 500 volatility index is close to historical highs, you can short volatility through $-1x Short VIX Futures ETF(SVIX.US);
• Buy individual stock call options: Options Beginner Course, Options Strategy Course；

Response to High Volatility

Goldman Sachs predicted over the weekend that the S&P 500 index will form a gap down/up wide fluctuation pattern in the coming weeks. To cope with the potential short-term large rises and falls of the index, investment experts can manage the possible significant volatility by constructing straddle options: Buy Straddle (Expecting Significant Stock Volatility).

How will you choose to respond to this round of U.S. stock declines? Can U.S. stocks make a comeback tonight? Participate in guessing the rise and fall to see how everyone judges the movements of Tesla, Nvidia, and Apple tonight: Daily Guess Rise and Fall, Share Task Coins