Not only Korean stocks, what are the risks of the $200 billion US stock leveraged ETFs?

Since June, the Korean stock market has shown global investors extreme volatility driven by high market concentration and excessive leverage. Since 2000, the Korea Exchange has triggered circuit breakers only 11 times; last month alone saw 3 triggers. Compared with Korea, leverage risk in the U.S. stock market is more reflected in structural leverage built jointly by leveraged ETFs, zero-day options, passive ETFs, and CTAs.

As of now, U.S. margin debt has increased by 54% year over year to $1.4 trillion, setting a record high. The market size of U.S. leveraged ETFs has approached $220 billion, nearly doubling from the end of March. Among them, the size of technology-related leveraged ETFs grew by 136%, while leveraged ETFs related to semiconductors grew by nearly 175% more. Hedge funds’ net exposure to the AI and semiconductor sectors remains at the 98th percentile over the past 5 years. The daily rebalancing trading volume of leveraged ETFs has reached a record $50 billion, accounting for 1.60% of S&P 500 futures trading volume—200% higher than the peak in 2020–2024.

At present, whether it is the Korean stock market or the U.S. stock market, market pricing has already clearly moved ahead of macro fundamentals, with a large portion of the potential value of the AI industry being priced into stocks in advance. Against this backdrop, the upside momentum in U.S. stocks is supported more by capital inflows and trading structure than by fundamental, root improvements in corporate earnings—leading to a continuous buildup of deleveraging risk.

The structural risk lies in high concentration. As capital continues to flow in, the semiconductor sector’s weight in the S&P 500 has risen to 18.8%, which is 2 times the peak during the internet bubble period of 2000; at the same time, the top 10 constituent stocks together account for nearly 40% of the index weight, meaning upward momentum in the market is highly concentrated in a small number of AI beneficiaries. This implies that any marginal change in the performance of core holdings may be amplified through the leverage chain, thereby triggering large fluctuations at the index level. Taken together, these data point to a core conclusion: leverage has shifted from being an important force driving bull-market gains to becoming a structural source of uncertainty in financial markets.

One of the biggest risks in U.S. stocks: leverage in market structure

In recent years, passive investing has continued to expand, and ETFs have become the most important source of incremental capital in the U.S. stock market. Because passive funds allocate assets according to index weights, when tech stocks rise and index weights increase, new inflows will continue to buy these leading companies, further pushing up stock prices. And as stock prices rise, they improve index performance, attracting even more capital inflows into ETFs, forming a positive feedback loop.

The daily rebalancing mechanism of leveraged ETFs requires managers to buy when the market rises and sell when it falls. This mechanized chase for gains and cut losses turns capital flow from passively following the market into actively amplifying price volatility.