JPMorgan reports that $26 billion of leveraged ETF selling contributed to Friday’s sharp U.S. stock market drop, triggered initially by Trump’s new tariff threats on China. Options dealers likely exacerbated the downside as they hedged their exposure.
Key takeaways:
- High volatility stocks like Tesla were at the center of leveraged ETF trades
- Equities rebounded on Monday after easing trade tensions, while gold hit record highs
- ETF issuers are increasingly filing for 3x leverage products, up from the SEC-approved 2x, to meet investor demand
- There are now around 900 leveraged ETF products, making up 33% of new ETFs but only 1% of the $12T U.S. ETF market
“Customers selling volatility going into Friday came back to bite them,” said Steve Sosnick, Interactive Brokers strategist.