Gamblers Sinking Billions Into Leveraged Market Fringe

The buy-everything mania that followed Donald Trump’s election is cooling in the established domains of stocks and corporate credit.

At the center of this speculative activity lies the $140 billion market for leveraged ETFs, which track everything from Big Tech stocks to Bitcoin proxy MicroStrategy Inc. and beyond.

Yet, on Wall Street’s speculative fringes, the risk-taking frenzy is growing larger by the day, according to Denitsa Tsekova and Vildana Hajric, reporting for Bloomberg News.

Heavy trading and significant price swings in assets ranging from cryptocurrencies to leveraged exchange-traded funds (ETFs) dominated the week. This comes as volatility in the S&P 500 and Nasdaq 100 has finally begun to subside.

At the center of this speculative activity lies the $140 billion market for leveraged ETFs, which track everything from Big Tech stocks to Bitcoin proxy MicroStrategy Inc. and beyond.

Investors are pouring into vehicles that amplify gains and losses on indexes and individual companies, including the "Magnificent Seven" tech stocks. Trading volume in single-name leveraged products hit a record $86 billion this week.

This marks the latest exuberant chapter in a standout year for risky assets, fueled by a booming economy and Trump’s election pledges, despite the Federal Reserve's slow pace in cutting interest rates.

The recent gains have boosted brokerage accounts just in time for holiday shopping. However, the scale of speculation has raised concerns among market experts.

“This euphoria is rampant speculation on par with the 2000 peak,” said Michael O’Rourke, chief market strategist at JonesTrading. “These levels of momentum and turnover are hard to sustain over an extended period.”