Stock markets remain near record highs and economic numbers keep beating expectations, but a closer look reveals traders are starting to step away from the riskiest bets that drove much of this year’s gains.
Day traders who fueled rallies in everything from tech stocks to cryptocurrency are now pulling money out of the most speculative investments.
This shift comes even as the Federal Reserve continues supporting markets and major indexes hover close to recent peaks.
The clearest sign of this change shows up in leveraged exchange-traded funds, which use borrowed money to amplify daily stock moves by two or three times. These products, popular with individual investors seeking quick profits, have lost about $7 billion in September. According to Bloomberg Intelligence this is the biggest outflow since records began in 2019.
The retreat doesn’t signal widespread panic. Instead, traders appear to be cashing in profits and preparing for possible bumps ahead after months of rewards for taking big risks.
Chip fund loses $2.3 billion despite 31% gain
Take the Direxion Daily Semiconductors Bull 3x Shares fund, known by its ticker SOXL. Despite gaining 31% this month, investors pulled more than $2.3 billion from the fund. Similarly, TSLL, which triples exposure to Tesla stock moves, faces its largest monthly outflow ever with $1.5 billion already withdrawn, even as Tesla shares have been climbing.
This careful approach may reflect concerns about upcoming events. A possible government shutdown could delay economic reports and shake investor confidence. Many see the pullback as healthy, given that stock and bond markets have reached levels rarely seen except during the most excited periods of the past twenty years.
What stands out is who’s moving first. Individual investors – often called “dumb money” by Wall Street professionals for supposedly making poor timing decisions – have actually been ahead of the curve this year. Their steady buying during the first six months helped drive a rally that many professional investors initially doubted. When markets fell in April due to tariff worries, retail traders were among the first to jump back into risky investments.
For the week, the S&P 500 dropped 0.3%, marking its first decline in a month. The tech-focused Nasdaq 100 also posted its first down week since late August, falling 0.5%. The iShares 20+ Year Treasury Bond ETF slipped for a second straight week.
Crypto crash wipes out $300 billion
As Cryptopolitan reported, cryptocurrency markets added to the cautious mood this week. Digital assets lost roughly $300 billion in value as leveraged positions unwound, forcing sales that pushed Bitcoin and Ether sharply lower in one of the most volatile stretches since the summer. Though prices recovered by Friday, the magnitude of the decline and doubts about business interest could pressure individual investors who had accumulated substantial profits this year.
Whether driven by gut feeling or exhaustion, the retreat may signal a broader rethinking of risk. But in markets this elevated, even small mistakes or poorly timed exits can prove costly.
No signs point to a major downturn yet, but conditions appear more delicate than before. Money is flowing into safer investments – cash-like funds, gold, and volatility products – at the fastest pace in months. Together, these movements suggest markets are quietly adjusting, with speculative betting retreating even as core investments hold steady.
Investment firms are making adjustments, too. Lido Advisors, which manages $30 billion, has added protective strategies like selling covered calls for income and buying put spreads as insurance against losses. This lets them stay invested while managing risk during uncertain times.
“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.”