JPMorgan analysts say leveraged exchange-traded funds (ETFs) played a major role in amplifying Friday’s Wall Street selloff, estimating that around $26 billion in ETF-related selling at the close deepened losses triggered by President Donald Trump’s tariff threats against China.
Reuters cite the JPM note published late Sunday. In summary:
- JPMorgan’s Americas equity derivatives team said the forced selling from leveraged ETFs left options dealers scrambling to hedge exposures, worsening the late-day slide. The analysts warned that more ETF-driven volatility could follow as such products grow in popularity.
Leveraged ETFs — which use swaps and options to magnify daily stock moves — have surged in demand this year, with roughly 900 products now on the market, accounting for a third of new ETF launches but just 1% of the industry’s $12 trillion in assets, according to StockTwits data.
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I have to admit this one has me wondering. Its not really news that managers of leveraged products would have had to chase the price lower, just as they have to chase the price higher the other way.
The JPMorgan report adds to concerns that rapid growth in leveraged ETFs could amplify market swings. Rising demand for 2x and 3x single-stock products may heighten intraday volatility, especially if macro shocks, such as new tariffs, trigger further forced hedging by dealers.
I think the best thing to do is to learn to deal with it. Hand wringing won't help.
