Leveraged ETFs surge 94% as Warsh, SpaceX, Iran fuel rally

Five leveraged ETFs posted gains of as much as 94% last week as three catalysts converged to ignite a risk-on rally.

The Direxion Daily Technology Bull 3X Shares led a group of five leveraged exchange-traded funds that surged as much as 94% last week, fueled by Kevin Warsh's debut as Federal Reserve chair, SpaceX's $60 billion acquisition of AI startup Cursor and signs of de-escalation with Iran.

"The convergence of a new Fed chair who signaled rate stability, a transformative AI deal and easing Middle East tensions created a perfect storm for risk assets," said Krishna Guha, vice chairman at Evercore ISI and a former New York Fed communications official.

The Federal Reserve held rates at 3.50%-3.75% at Warsh's first meeting, while the dot plot showed policymakers leaning toward two quarter-point hikes by year-end. SpaceX shares gained 16% on Tuesday after the rocket-maker announced its $60 billion all-stock deal for Cursor, which crossed $1 billion in annualized revenue in November. Separately, Vice President JD Vance said Iran had agreed to invite UN nuclear inspectors back into the country, pushing Brent crude below $78 a barrel.

The rally pushed the S&P 500 to a weekly gain of 2.3%, closing at 5,612, with the Cboe Volatility Index falling below 14 for the first time in three weeks. The next test for momentum comes Friday, when the Fed's preferred inflation gauge — the core PCE price index — is due for May.

The five leveraged ETFs that posted the largest gains included funds tracking the S&P 500, Nasdaq-100 and technology sector, with daily rebalancing amplifying the week's cumulative returns. The ProShares UltraPro QQQ gained 78%, while the Direxion Daily S&P 500 Bull 3X Shares rose 67%, according to data compiled by Bloomberg.

Warsh Strikes a Hawkish-Dovish Balance

Warsh's debut statement stripped back the Fed's forward guidance to a single declarative line — "The committee will deliver price stability" — replacing the nuanced language of his predecessor Jerome Powell. The statement was approved unanimously, the first such vote in a year. While the dot plot pointed to rate increases, Warsh's press conference emphasized that decimal-point precision on the 2% inflation target "doesn't matter," a signal interpreted by markets as tolerance for inflation running near target.

The 10-year Treasury yield rose 8 basis points on the week to 4.12%, while the dollar index slipped 0.3%, providing a tailwind for equities. Analysts at JPMorgan said Warsh's five new task forces on Fed reform, including one on communications, could reshape how the central bank engages with markets.

SpaceX and Iran Add Fuel

SpaceX's Cursor deal, representing a 3.4% dilution at the company's IPO valuation, marks the largest AI acquisition by a U.S. corporation this year. Cursor's AI coding tool had seen its market share decline to 26% from 41% a year earlier, according to spending data from Ramp, but the deal positions SpaceX to compete more aggressively with Anthropic and OpenAI in the developer tools space.

On the geopolitical front, the Iran development removed a key source of uncertainty that had weighed on equities since early spring. Brent crude settled at $77.50 a barrel, down 4.2% on the week, reducing input costs for transportation and industrial sectors.

The rally's breadth was broad: advancing stocks outnumbered decliners by a 3-to-1 ratio on the New York Stock Exchange, and 85% of S&P 500 members closed higher on the week. The VIX settled at 13.8, below its 12-month average of 16.2. Trading volume on U.S. exchanges averaged 12.8 billion shares per day, 15% above the 20-day average.

This article is for informational purposes only and does not constitute investment advice.