By most measures, markets remain on strong footing. Economic data continues to surprise to the upside. The Federal Reserve has extended a fresh lifeline to Wall Street. Stocks are close to recent highs.
But beneath that surface, there are signs of a shift.
Risk-loving day traders are stepping back from the market’s frothiest corners — bets that soared through the summer on little more than momentum and hype.
In recent days, money has flowed out of exchange-traded funds focused on frontier technologies and highly leveraged wagers tied to the biggest names in tech.
Even crypto, long a barometer of risk appetite, has lost momentum.
Leveraged ETFs — which use financial tactics to double or even triple the daily moves of indexes or single stocks — have become a hot tool for fast-moving retail traders. Yet these products beloved by the retail set have seen roughly $7 billion in outflows this month, the most in data going back to 2019, according to Bloomberg Intelligence.
The outflows hardly signal panic. They’re about positioning. After a months-long stretch that rewarded risk-taking regardless of the odds, traders appear to be locking in gains and bracing for potential volatility ahead.
That change is evident in funds like the Direxion Daily Semiconductors Bull 3x Shares (ticker SOXL), a triple-leveraged ETF tied to semiconductor stocks. It’s up 31 per cent this month, but investors have pulled more than $2.3 billion out anyway — a sign that some are stepping away while still ahead.
Similarly, TSLL, a fund that amplifies exposure to Tesla Inc., is on pace for its largest-ever monthly outflow, with some $1.5 billion already out, even as shares of Elon Musk’s company perk up.
Some of that caution may stem from what’s ahead. A potential US government shutdown could disrupt economic data releases and dent investor confidence. And many will see the step-back as healthy: stock and credit markets have climbed to levels rarely seen outside the most exuberant moments of the past two decades.
What’s notable is who appears to be moving first. Retail investors — often dismissed as the “dumb money,” late to act and quick to overreact — have repeatedly been ahead of the curve this cycle.
Their persistent buying during the first half of the year proved prescient, helping drive a rally many professionals were slow to trust. After April’s tariff-driven pullback, retail traders were among the first to rotate back into risk. Their current retreat from the market’s frothiest corners may again be a signal worth heeding.
For the week, the S&P 500 fell 0.3 per cent, the first decline in a month. The tech-heavy Nasdaq 100 also notched its first down week since the end of August, with a 0.5 per cent drop. Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT) slipped for a second week.
“Active traders are still willing to chase fast-moving stocks, particularly in their favorite sectors like all things AI, quantum computing and crypto-adjacent shares, but their appetite for buying dips and chasing rallies has indeed abated,” said Steve Sosnick, chief strategist at Interactive Brokers. “I don’t know if I’d classify it as indigestion yet. Maybe just a bit of a food coma after gorging at the buffet for several years.”
Adding to the diminished sentiment, cryptocurrencies at one point shed roughly $300 billion in value this week as leveraged bets unraveled — a wave of forced liquidations dragged Bitcoin and Ether sharply lower, marking one of the most volatile stretches since the summer.
Even as prices stabilized Friday, the scale of the unwind — and questions about waning corporate demand — threaten to weigh on retail traders who have otherwise racked up significant gains this year.
Whether by instinct or fatigue, the retreat may be telegraphing a broader reappraisal of risk. But in a market this elevated, even small missteps — or mistimed exits — can carry outsize costs.
“It’s interesting how retail has positioned themselves throughout the year compared to institutional investors,” said Eli Horton, senior portfolio manager at TCW Group. “If you go back to April when the market was making new lows, retail investors actually bought that dip. You could call it a Main Street-driven rally, not a Wall Street-driven rally.”
There’s no indication that a broader downturn is imminent. But the landscape is more fragile than it once was. Flows are moving into safer assets — cash-like ETFs, gold funds, and volatility-linked products — at the fastest pace in months. Together, these cross-currents point to a market undergoing quiet recalibration. The speculative edge is retreating, even as the center holds.
“The market was overbought, and it was overbought in super-speculative stocks,” said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management. “Those stocks were getting to bubble territory. That is a very dangerous sign.”
Lido Advisors in Los Angeles is among those tweaking exposure. While balanced across asset classes, the $30 billion wealth manager has adopted hedging strategies such as selling covered calls to generate income and buying put spreads to provide protection during drawdowns. This helps the firm stay invested, while managing exposure amid what they see as an increasingly uncertain global backdrop.
“We’re teetering on that fine line — when does bad data become bad for the markets?,” said Nils Dillon, the firm’s director of portfolio strategy and alternative investments. “And that’s the predicament that the market is finding itself in, particularly this week.”
Over at Janus Henderson, Lara Castleton, the US head of portfolio construction and strategy, said the firm has seen a pickup in client interest around fixed income. “It’s dangerous to be buying on the optimism of Fed cuts and the easing cycle,” she said. The team is advising clients to stay grounded in fundamentals, favoring high-quality bond exposures — including Treasuries, corporate credit and agency mortgages — that offer income without excessive risk.
Any dimming of bullish spirit may turn out to be temporary, says Greg Peters, co-chief investment officer at PGIM Fixed Income. Even so, the firm is staying cautious. Around 30% of its risk is positioned in shorter-term assets, where the company can benefit from income and reinvestment opportunities.
“To me, the markets just seem a tad tired,” he said. “Given the recent strong growth numbers, it may be short-lived.”
More stories like this are available on bloomberg.com
Published on September 28, 2025