Giant "shoulders" of semiconductor ETFs threaten the stability of the U.S. stock market
The U.S. market faces a new threat emerging from within its own structure. The unprecedented growth in assets under management of leveraged semiconductor ETFs has created a unique situation where these instruments are beginning to dictate terms to the entire stock market, rather than simply following its movements. The total assets of U.S. leveraged ETFs have reached a record $198 billion, and by some estimates, have already surpassed the $200 billion mark.
The main impact falls on the technology sector, where the overwhelming majority of these funds are concentrated. Such concentration in a single industry multiplies the influence of these funds on the entire market. The rebalancing mechanism, which forces funds to buy on the rise and sell on the fall, has turned into a powerful catalyst for movements.
Mechanical Amplification: How Leverage Changes the Game
Analysts note that the impact of leveraged ETF rebalancing has sharply increased. If a year ago, moving the S&P 500 index by 1% required trades of approximately $2 billion, today that figure is approaching $10 billion — a fivefold increase in just 12 months. This means that with every 1% market move, leveraged semiconductor ETFs are mechanically forced to buy or sell underlying stocks worth about $10 billion by the end of the trading session, regardless of investor sentiment.
The SOXL fund, with triple leverage, deserves special attention. It currently holds record assets of around $35 billion. Given that the product targets triple daily returns, even a moderate pullback in the sector can quickly turn into a 20-30% drawdown. This makes it extremely vulnerable and a potential source of a chain reaction.
System Fragility: Why the Market Has Become More Vulnerable
The very structure of these funds creates a vicious cycle: they buy on the rise, amplifying the bullish momentum, and sell on the decline, exacerbating panic. The larger these funds become, the more they amplify movements in both directions. The semiconductor bet has never been so overloaded with leverage, overcrowded with participants, and fragile. It is this combination of factors that creates systemic risk for the entire market.
My opinion: The cryptocurrency market, which is itself prone to volatility and the leverage effect, should closely monitor the situation in traditional finance. Such a concentration of risk in an "overheated" semiconductor sector is a classic precursor to a correction that could affect all risk assets, including digital ones. Investors should reconsider their risk management strategies and be prepared for sharp movements.