'The Retail Investor Gets Inevitably Wiped Out': The Tickers Most Hit by the Chip Stocks Rout

Leveraged ETFs that must sell shares every time stocks fall may be the mechanical culprit behind the worst momentum selloff in 27 years, according to Forward Guidance podcast co-host Tyler Neville, a former buy-side derivatives trader.

Momentum stocks have unwound at the fastest pace in the 27-year history of a Morgan Stanley tech momentum index, with the pain concentrated in semiconductors.

The rout has gone global, with SoftBank Group Corp. (OTC: SFTBY ) tumbling over 11% in Tokyo on Friday as Japanese chip names sank alongside Wall Street.

The selling pressure may be baked into how these products work.

Leveraged ETFs must rebalance daily to maintain their exposure, meaning they buy more when stocks rise and sell more when stocks fall, regardless of price or fundamentals.

That mechanical selling may now be amplifying the downturn.

Assets in leveraged ETFs peaked at a record of roughly $218 billion before contracting to around $198 billion as the selloff hit, with semiconductor products shedding about 20% of their assets, according to Citadel Securities.

The Machine Works In Both Directions “The retail investor inevitably gets wiped out,” Neville said on Friday’s episode, arguing that the same flows that fueled the rally are now accelerating the decline.

Neville noted that many popular names traded at implied volatility near 120, which translates to daily swings of plus or minus 7.6%.

Stocks that volatile may force funds to cut positions simply to manage risk, creating more selling pressure.

The spread between single-stock and index volatility has reached a record high, according to the same Citadel Securities research.

The main beneficiaries, according to Neville, are market makers such as Jane Street and Citadel Securities, which he said monetize the volatility through delta hedging while fundamentals “don’t matter anymore.” The damage is stark.

Chip stocks are on pace for their worst month ever against software, with the median semiconductor ETF holding down over 22% in July.

Even Nvidia Corp. (NASDAQ: NVDA ) surrendered its July gains in this morning’s slide.

What Prediction Markets Are Saying Traders on Kalshi now price a 25.9% chance the S&P 500 falls to 6,300 or below this year, roughly 15% beneath current levels, with the odds ticking higher as the momentum unwind accelerated.

Polymarket traders appear less alarmed about the bigger picture.

A market asking whether the AI bubble bursts by year-end sits at just 16%, down from highs near 30% in May.

Neville suggested single-stock volatility likely has to fall before fundamentals reassert themselves.

Until then, the selling may keep feeding on itself.

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