Investors no longer appear to be as rattled by the Middle East conflict as they were during its initial stages. While uncertainty surrounding a potential peace deal between Washington and Tehran continues to linger, market participants are increasingly treating the geopolitical tensions as a contained risk, with most of the volatility remaining concentrated in energy markets.
However, market sentiment received a boost and peace deal optimism increased after reports that Washington and Tehran had tentatively agreed to prolong their ceasefire and relax shipping restrictions in the Strait of Hormuz, as stated on Reuters. Still, doubts remain as President Donald Trump has not formally approved the agreement, while Iranian media stated that negotiations are ongoing.
Investors continue to closely monitor the diplomatic path between the two nations, as any meaningful breakthrough could further improve market sentiment. In the event that a peace deal is reached, global equities could witness a strong relief rally, driven by easing geopolitical risk premiums, stabilizing energy prices and renewed confidence across risk assets.
Additionally, markets have also been supported by the ongoing AI-driven rally, fueled by optimism surrounding artificial intelligence, massive AI-related investments from tech giants and strong momentum in semiconductor and AI infrastructure stocks.
The combination of improving geopolitical sentiment and sustained AI enthusiasm has continued to strengthen investor risk appetite and support broader equity markets. The S&P 500 has gained 1.27% over the past five days and 6.03% over the past month, bringing its year-to-date gains to 9.97%. Additionally, the CBOE Volatility Index has fallen about 5.76% over the past five trading sessions and 11.05% over the past month, further reflecting the increasing risk-on sentiment in the market.
For investors with greater risk tolerance, leveraged ETFs could offer an opportunity to magnify bullish bets and capitalize on short-term market momentum.
A Closer Look at Leveraged ETFs
Leveraged ETFs can be powerful tools for investors seeking to magnify short-term market moves, as these products aim to deliver 2x or 3x the daily performance of an underlying index through the use of derivatives such as swaps, futures contracts and other financial instruments. These products can be powerful tools for enhancing portfolio returns, particularly in high-conviction themes and fast-moving sectors.
In strongly trending markets, their compounding effect can generate outsized gains over a relatively short period, making them attractive tactical vehicles for aggressive investors.
However, leveraged ETFs carry significantly higher risks than traditional funds. Additionally, leveraged ETFs tend to be more expensive due to higher management fees and the use of derivatives.
That said, leveraged ETFs are best suited for short-term tactical positioning, as their amplified return potential also comes with heightened volatility. Given these risks, leveraged ETFs are typically more appropriate for experienced and risk-tolerant investors who actively monitor market movements and understand the complexities associated with leveraged investing.
ETFs to Ride Semiconductor Boom With Amplified Exposure
Micron MU achieved a historic $1 trillion market capitalization earlier in the week, underscoring the continued rally across semiconductor and AI infrastructure stocks. The performance of the funds mentioned below highlights the explosive momentum in semiconductor stocks amid the ongoing AI-driven rally.
Direxion Daily Semiconductor Bull 3X ETF SOXL
Direxion Daily Semiconductor Bull 3X ETF seeks daily investment results of 300% of the performance of the ICE Semiconductor Index. The fund charges an annual fee of 0.75% and has a one-month average trading volume of about 61.71 million shares.
Direxion Daily Semiconductor Bull 3X ETF gained 3.05% on May 28 and has added 164.27% over the past month. SOXL has delivered staggering returns of 202.82% year to date and 949.05% over the past year.
ProShares Ultra Semiconductors USD
ProShares Ultra Semiconductors seeks daily investment results that correspond to twice the daily performance of the Dow Jones U.S. Semiconductors Index. The fund charges an annual fee of 0.95% and has a one-month average trading volume of about 1.11 million shares.
ProShares Ultra Semiconductors gained 1.68% on May 28 and has added 61.62% over the past month. USD has surged 48.03% year to date and 302.88% over the past year.
Leveraged Tech ETFs for Diversified Participation in the AI Momentum Trade
The momentum in the technology sector is evident in the performance of the Nasdaq Composite, which has gained 2.03% over the past five trading sessions and 9.38% over the past month. The performance of the funds mentioned below reflects continued strength in the AI-driven rally and the powerful momentum behind the broader AI trade.
For investors seeking a more diversified leveraged play on the AI momentum trade, rather than taking concentrated exposure to the semiconductor sector alone, the following leveraged tech ETFs may offer broader participation across leading technology and AI-related companies.
ProShares UltraPro QQQ TQQQ
ProShares UltraPro QQQ seeks daily investment results that correspond to triple the daily performance of the NASDAQ-100 Index. The fund charges an annual fee of 0.82% and has a one-month average trading volume of about 71.46 million shares.
ProShares UltraPro QQQ added 2.46% on Thursday and has surged 52.18% over the past month. TQQQ has gained about 20.81% year to date and 132.45% over the past year.
ProShares Ultra QQQ QLD
ProShares Ultra QQQ seeks daily investment results that correspond to 200% of the daily performance of the NASDAQ-100 Index. The fund charges an annual fee of 0.95% and has a one-month average trading volume of about 4.64 million shares.
ProShares Ultra QQQ added 1.66% on May 28 and has gained 32.84% over the past month. QLD has surged 15.24% year to date and 82.96% over the past year.
Leveraged S&P 500 ETFs for Broad Diversified Exposure and Elevated Returns
Leveraged ETFs tracking the S&P 500 offer investors broader and more diversified leveraged exposure to the U.S. equity market, allowing them to take amplified positions on overall market strength rather than concentrating on a single sector or theme.
The performance of the funds mentioned below reflects strong momentum in the broader U.S. equity market, supported by improving investor sentiment, growing optimism surrounding AI-driven growth and an increasing appetite for risk among market participants.
ProShares Ultra S&P 500 SSO
ProShares Ultra S&P 500 seeks daily investment results that correspond to 200% of the daily performance of the S&P 500. The fund charges an annual fee of 0.87% and has a one-month average trading volume of about 3.39 million shares.
ProShares Ultra S&P 500 added 1.08% on May 28 and surged 21.38% over the past month. SSO has added 9.01% year to date and 59.54% over the past year.
Direxion Daily S&P 500 Bull 3X ETF SPXL
Direxion Daily S&P 500 Bull 3X ETF seeks daily investment results of 300% of the price performance of the S&P 500 Index. The fund charges an annual fee of 0.84% and has a one-month average trading volume of about 2.05 million shares.
Direxion Daily S&P 500 Bull 3X ETF was up 1.63% on Thursday and has gained 33.22% over the past month. SPXL has added 12.06% so far this year and 93.14% over the past.
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Direxion Daily S&P 500 Bull 3X ETF (SPXL): ETF Research Reports
ProShares Ultra QQQ (QLD): ETF Research Reports
ProShares Ultra S&P500 (SSO): ETF Research Reports
ProShares UltraPro QQQ (TQQQ): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).