"East is rising, west is falling" is an unstoppable trend? Wall Street speculators suffer a "bloodbath", with leveraged ETFs losing as much as 40%

A series of disappointing economic reports combined with concerns about US trade policy have suppressed the risk tolerance of the entire US stock market. Now, speculative products are causing heavy losses for investors. From leveraged bets on overvalued tech companies to complex options trading, to a variety of cryptocurrency speculation, the sell-off that led to four consecutive days of decline in major US indices is most evident in margin trading exchange-traded funds (ETFs) favored by retail investors. An extreme example is two leveraged ETFs related to Michael Saylor's bitcoin hoarding company Strategy (MSTR.US), whose total market value once exceeded $5 billion and has now dropped by about 40% in just three days. Leveraged funds that promised to double daily returns on NVIDIA Corporation (NVDA.US), Tesla, Inc. (TSLA.US), Amazon.com, Inc. (AMZN.US) have also plummeted. Bets with three times leverage on innovative stocks and semiconductor stocks have dropped by 20%. Max Wasserman, senior portfolio manager at Miramar Capital, said, "Following the market trend can be very effective when the trend is in your favor, but once it reverses, you have to be careful. It's like trying to catch a falling knife barehanded." While it is difficult to pinpoint the direct cause of this sell-off, pressures to sell increased noticeably last Friday after data on existing home sales, consumer confidence, and business activity fell below expectations. On Tuesday, the Conference Board said that due to concerns about the overall economic outlook, consumer confidence in the US this month fell by the largest margin since August 2021, further underscoring the pressure on American households due to the uncertainty of the Trump administration's policies. Products like exchange-traded products linked to NVIDIA Corporation use financial derivatives to amplify returns or achieve inverse returns and have also been affected in previous market crashes. Nevertheless, the lure of high returns continues to attract retail investors. While such products account for a small proportion of stock investments, they are rapidly growing, with most bets being bullish. Bloomberg Intelligence analysis shows that earlier this month, about $95 billion in assets were invested in products that use derivatives to make bullish bets on a single stock or index, while strategies betting on a decrease only attracted $9 billion. Although the recent performance of these funds is not surprising, their original design is to provide a high-risk, high-return investment path regardless of market fluctuations, their exceptionally high popularity could amplify the impact on market sentiment. Peter Tchir of Academy Securities said that with the development of cryptocurrencies and related securities, this risk is becoming more prominent. He pointed out, "It's all about greed. The stocks with the highest gains have attracted aggressive investors eager to profit with leverage. The underperforming stocks will now be concentrated on some previous big winners, which were popular choices when aggressive money poured into single-stock leveraged ETFs." It's not just leveraged trading that has suffered losses, but also bets on tech companies and other potential innovative enterprises. On Tuesday, a benchmark for the "Magnificent Seven" large-cap stocks once dropped by 3.4%. The $6.2 billion ARK Innovation ETF (ARKK.US) managed by Cathie Wood, a darling of retail investors, saw its net asset value drop by 6.7% on Tuesday. The decline in prices of a series of speculative tech companies, including the largest holdings of the fund such as Tesla, Inc. (TSLA.US), Roku Inc. (ROKU.US), and Palantir Technologies (PLTR.US), dragged down the fund. Her flagship ETF may see net outflows for the 14th consecutive month, reducing the assets under management for her actively managed ETFs to about $12 billion, a significant decrease from $60 billion four years ago. Matt Maley, chief market strategist at Miller Tabak + Co., said, "There is no doubt that the market's optimism is fading. Last week, the decline in the stock prices of companies like Palantir, Tesla, Inc., and Meta set the stage. Now, the significant drop in bitcoin further highlights this trend." However, discussions about the rise and fall of the market continue to heat up. The AI investment frenzy that has ignited the Chinese stock market, driving the strong performance of Chinese tech stocks favored by global funds since the beginning of the year, matches the super-hot trend of artificial intelligence in 2023 compared to the tech stock frenzy in the US. On February 26, the Hang Seng Index opened 0.89% higher, and the Hang Seng Tech Index rose by 1.14%. Tech stocks performed strongly, with Xiaomi Corporation, JD.com, Inc. Sponsored ADR Class A, Meituan rising by nearly 2%, 1.58%, and 1.3%, respectively.