The chip crash is exposing the brutal cost of leverage: Chart of the Day - Yahoo Finance

What the report says

Yahoo Finance reported that the recent semiconductor sell-off has shown how leverage can deepen losses for investors using daily reset exchange-traded funds. According to the report, the iShares Semiconductor ETF, SOXX, was down about 25% from its June 22 high, while the Direxion Daily Semiconductor Bull 3X Shares, SOXL, had lost nearly two-thirds over the same period.

The pressure intensified after SK Hynix reported earnings, with South Korea’s Kospi falling as much as 13% overnight before trimming the decline to about 6%, Yahoo Finance said. The report noted that Goldman Sachs traders still observed buying in memory-related stocks, suggesting market conditions remained unsettled rather than fully washed out. The decline also brought what Yahoo described as a record wave of trading halts.

A central point of the report is that SOXL is built to deliver three times the daily performance of the NYSE Semiconductor Index, not three times the return over weeks or months. Because the fund resets each session, gains and losses compound from a changing base. That means volatile declines can leave leveraged products with much steeper recovery hurdles: Yahoo calculated that SOXX would need about a 33% gain to offset a 25% fall, while SOXL would need roughly 170% to recover from a 63% slide.

The broader significance is the scale of leveraged exposure in markets. Citing Baird Strategas, Yahoo reported that the 200 largest leveraged ETFs still represent more than $400 billion in notional exposure, down roughly $100 billion in the past month but still near record levels.