The recent landscape of investment in the U.S. has been marked by a surge of individual investors diving back into the turbulent waters of leveraged funds and ETFs, showcasing an undeniable confidence even amidst widespread fears surrounding artificial intelligence and cryptocurrencyThis phenomenon reflects a striking contrast to the hesitance seen in traditional, conservative market strategies, as the total assets of leveraged funds have approached an impressive $100 billionSimultaneously, bearish market bets, which many would typically rely on during uncertain times, appear to be losing their footing.

Investors, often described as speculators, are taking advantage of a unique opportunity by buying the dip in once-popular stock strategies through exchange-traded funds (ETFs). These ETFs have been designed to amplify asset returns with leverage ranging from two to three timesFollowing a dramatic downturn that saw semiconductor stocks plummet to their greatest single-day drop in nearly five years, opportunistic capital flooded into leveraged products aiming to capitalize on the sector’s recoveryOne standout example includes a double-leveraged Ethereum ETF, which, after facing its most unprecedented decline in nearly four years due to tariff concerns, recorded historic levels of inflows.

To grasp the driving force behind this trend, one must examine the role of "fear of missing out" (FOMO) in shaping speculative behaviorOne approach is to assess the trading activity and asset size of bullish versus bearish productsData compiled by Bloomberg Intelligence reveals that the assets of products leveraging derivatives to take long positions surged to a record high of about $95 billion as of mid-last weekIn stark contrast, the assets of inverse stock ETFs that profit through short-selling strategies – including those that target significant indices like the S&P 500 and Nasdaq 100 – amass a mere $9 billionThe gap between these valuations represents the largest disparity ever recorded.

Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence, provided insight into this expansive divergence in a recent report

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He commented, “The near-euphoric sentiment among ETF investors, a seemingly foolproof strategy of buying the dips, combined with a record number of leveraged products, have created a fertile environment for 'degen traders'.” Such traders are actively chasing high-risk, highly leveraged investments as part of this newly invigorated market narrative.

This tempestuous mood in the markets further plays out as U.S. stocks saw a slight increase on Monday, particularly bolstered by the tech sector, as concerns over tariffs seemed to momentarily fadeDay traders, who proudly label themselves as “gamblers” and showcase their high-risk strategies on social media platforms, revel in these favorable conditionsThe resilience of bullish sentiment is proving beneficial for Wall Street issuers, allowing for the introduction of new products aimed at profiting from hot indices and individual stocks.

Specific ETFs reflecting this behavior include the double long ETF tracking Microsoft (MSFT.US) and the triple long ETF tied to the semiconductor sector (SOXL), both celebrating two consecutive weeks of influxMoreover, the double long Tesla ETF (TSLL) has marked its longest streak of inflows since early 2023, having accrued capital over nine weeks, with last week’s inflow reaching an all-time highAnother actively followed investment, the double long Ethereum ETF (ETHU), also attracted significant inflows for five consecutive weeks, illustrating a broader investor excitement in tech-related offeringsInterestingly, the Nvidia double long ETF (NVDL), however, experienced a notable outflow last week, contradicting the prior week’s record inflow of $1.6 billion.

This boost in investor enthusiasm appears somewhat detached from the overarching market anxiety triggered by companies like DeepSeek, a Chinese AI startup developing high-performance AI models at a fraction of the cost compared to American competitorsSuch advancements have raised questions regarding the justification of the substantial research and development expenditures made by major tech players, potentially threatening the foundational support that has sustained the bullish AI trends in the U.S. stock market over recent years.

Nevertheless, Raphael Thuin, Capital Markets Strategies Head at Tikehau Capital, maintains an optimistic outlook, noting, “This remains a market worth investing in

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On Wednesday, renowned hedge fund manager Jim Chanos remarked, “The speculative waves are returning.” While he asserted that the current speculation lacks the frenzy observed in 2021—perhaps the most frenzied market iteration in recent memory—he still identified a resemblance with the returning enthusiasm, particularly spotlighting the re-emergence of the meme coin trend, hinting at an uptick in broader speculative sentiment.

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