US stocks were tested in the first quarter as the fear and greed index plunged to the extreme fear zone of 18. The tech-heavy Nasdaq 100 index crashed into a correction, falling by over 13% from its highest point this year. It dropped to its lowest point since September last year.
Similarly, the S&P 500 and Dow Jones indices also neared their correction phase. This article explains why these US indices crashed, and whether the boomer candy ETFs like the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) and JPMorgan Equity Premium Income ETF (JEPI) did better these indices.
Why the S&P 500 and Nasdaq 100 indices crashed in Q1
There are two main reasons why the top indices like the Nasdaq 100 and S&P 500 indices dropped in the first quarter even as most of them published strong financial results.
The first main reason is that there are concerns about the Liberation Day tariffs by Donald Trump. A president who was expected to be pro-markets became a nightmare as he implemented sweeping tariffs on most American imports.
He added tariffs on Chinese goods on top of those he added in his first term. Most importantly, in a Black Swan Event, Trump added tariffs on Canadian and Mexican goods, two of the biggest trading partners.
Trump also added tariffs on steel and aluminum, and will now execute reciprocal tariffs on imported goods from other countries. His goal is to reduce the giant trade surplus in the US, raise money for his large tax cuts, and boost manufacturing in the country.
The S&P 500 and Nasdaq 100 indices also crashed because of the rising risks that the artificial intelligence (AI) theme that has defined the market in the past few years is fading. This explains why most AI stocks like NVIDIA, SoundHound, and AMD crashed.
How JEPI and JEPQ ETFs work
The JEPI and JEPQ ETFs were created to give investors an exposure to American equities and provide them with consistent monthly income.
These funds aim to generate returns in three main ways. First, they first invest in a group of companies. In JEPQ’s case, it invests in companies in the Nasdaq 100 index, while in JEPI’s case, it invests in a group of companies that are part of the S&P 500 index.
Investing in these companies helps it to benefit from their uptrend over time. At the same time, the funds generates dividends from the companies.
The third area where the JEPI and JEPQ ETFs make money is from the options market. This is where the fund sells call options on an index and makes a premium from it. In JEPI’s case, it writes call options from the S&P 500 index, while JEPQ writes calls for the Nasdaq 100 indices.
The main disadvantage of these ETFs is that their gains are usually capped when the respective index hits its strike price.
JEPI and JEPQ ETFs scorecard for Q1
Data shows that these two ETFs did better than their respective ETFs in the first quarter as the call option trade continued to generate strong returns during the quarter. The JEPQ ETF had a total return of minus 6.6%, while the Invesco QQQ dropped by 8.15%. Similarly, the JEPI ETF rose by 0.43%, while the VOO ETF crashed by 4.29%.
Therefore, this performance means that these funds will likely continue doing well over time. As such, if you are long the S&P 500 and Nasdaq 100 index, it makes sense to invest in these funds to generate a reliable monthly return. JEPQ has a dividend yield of 10.9%, while JEPI has a yield of 7.5%.
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