The stock market is approaching record highs and economic numbers continue to beat expectations, but a close look reveals that traders are beginning to move away from the most risky bets that have driven many of the profits this year.
Day traders who have driven gatherings on everything from tech stocks to cryptocurrencies now draw money from the most speculative investments.
This shift continues despite the Federal Reserve continuing to support the market and key indexes approaching recent peaks.
The most obvious indication of this change will be seen in funds traded on leveraged exchanges. These products have been popular with individual investors seeking quick profits, losing around $7 billion in September. According to Bloomberg Intelligence, this is the biggest leak since records began in 2019.
The retreat does not signal widespread panic. Instead, traders seem to be cashing in profits and preparing bumps that could go ahead a few months after the reward of taking a big risk.
Chip fund loses $2.3 billion despite 31% profit
Check out the Direxion Daily Semiconductors Bull 3X Stock Fund, known for Ticker SOXL. Despite winning 31% this month, investors have taken over $2.3 billion from the fund. Similarly, TSLL, which trips exposure to Tesla stock movement, faces the biggest monthly outflow with $1.5 billion already being withdrawn, despite Tesla stocks rising.
This careful approach may reflect concerns about upcoming events. The possibility of government shutdowns could delay economic reporting and shake up investors’ trust. With the exception of the most exciting period of the last 20 years, many consider themselves healthy given the stock and bond markets rarely seen.
What stands out is who is moving first. Individual investors are often referred to as “silly money” by Wall Street experts who probably made poor timing decisions, but they are actually ahead of the curve this year. Their stable purchases for the first six months helped drive the rally that many professional investors initially suspected. When the market fell in April due to tariff concerns, retailers were among the first to return to risky investments.
That week, the S&P 500 dropped by 0.3%, showing its first decline in one month. The high-tech Nasdaq 100 posted its first down week since late August, down 0.5%. Ishares Financial debt ETFs for ages 20 and above have been skated for the second week in a row.
Crypto Crash wipes out $300 billion
As reported by Cryptopolitan, the Cryptocurrency market has added to the cautious mood this week. Digital assets lost about $300 billion worth as leveraged positions were rewind, forcing sales that saw Bitcoin and ether fall sharply in one of the most volatile stretches since the summer. Prices were recovered by Friday, but doubts about the size of the decline and business profits could put pressure on individual investors who have accumulated substantial profits this year.
Whether you are driven by gut sensation or fatigue, retreats may represent a broader rethink of risk. But in the market, this has risen, but even small mistakes and low-timed exits can be costly.
There are no signs yet of a major recession, but the conditions look more sensitive than before. Money flows into safer investments, such as cash-like funds, gold and volatility products, at the fastest pace in months. Together, these moves suggest that the market is quietly tuned, and speculative bets are backing up despite the steady core investments.
Investment companies are also making adjustments. Lido Advisors, which manages $30 billion, has added protection strategies, such as selling cover calls for revenue and purchasing put spreads as insurance against losses. This allows you to continue investing while managing risks during uncertain times.
“When is bad data bad for the market?” said Nils Dillon, director of the company’s portfolio strategy and alternative investments. “And that’s the predicament that the market is finding itself, especially this week.”
