A months-long unwind of borrowed market exposure in the United States is still putting pressure on risk assets, with JPMorgan’s global markets strategy team warning that leverage in ETFs, options trading and margin accounts has not yet returned to normal levels. The process began in June and may take roughly three more months to run its course, leaving equities and more volatile digital assets vulnerable to further swings.
The bank’s report said several parts of the market remain stretched after a period of heavy risk-taking. Leveraged ETFs have shrunk from earlier peaks, retail call-option activity has retreated but remains elevated, and margin balances are still near levels last seen before previous market pullbacks. The overall message is that the pressure is easing, but not yet over.
That matters beyond the stock market. When traders use borrowed money to build positions in equities, ETFs or options, a drop in share prices can force them to raise cash quickly. In that situation, liquid assets are often sold first, including Bitcoin, Ethereum and other digital tokens. The result can be a sharp spillover from Wall Street into cryptocurrency markets, even when crypto-specific news is limited.
JPMorgan’s team said conditions may not return to pre-April levels for about three months. Until then, market stress could continue to appear in sudden bursts, especially if technology shares weaken again or volatility rises.
Leverage unwind remains the main pressure point
The strongest warning in the report centers on leverage, or the use of borrowed money to increase market exposure. Leverage can amplify gains when prices rise, but it can also force selling when prices fall. That forced selling is often what turns a routine decline into a broader market adjustment.
According to the report, leveraged ETFs have already declined 13% in total size from previous highs. The move has been much sharper in some of the most popular and volatile corners of the market. Leveraged semiconductor ETFs have fallen 34% from their peaks, reflecting both price declines and a reduction in traders’ exposure to the sector.
JPMorgan’s analysts said more market movement may be needed before the size of leveraged ETFs compared with their underlying assets returns to levels seen before April. In simple terms, these products may still be too large relative to the markets they track, meaning further volatility could be required to bring leverage back into line.
Leveraged ETFs are designed to deliver a multiple of daily moves in an index or sector. A 3x fund, for example, aims to rise or fall three times as much as the underlying asset on a given day. Over time, however, these products can lose value in volatile markets even if the underlying asset ends close to where it started.
The report highlighted a basic example: if an asset falls 10% and then rises 11.1%, it returns to its original level. But a 3x leveraged fund would fall much more on the first move and would not fully recover on the second move. This compounding effect creates what the report described as a self-correcting feature, because volatility itself eats away at the value of leveraged products and can reduce overall market exposure.
Options activity has cooled, but remains important
The report also pointed to the options market, where small-scale retail call-option buying surged earlier in the year. Call options are contracts that can gain value when the price of a stock or index rises. Heavy call buying often reflects aggressive bullish positioning, particularly in technology shares.
JPMorgan’s measure of small retail call-option purchases peaked at about 14 million contracts on June 5. That matched earlier extremes recorded in late 2021 and October 2025, according to the report. Historically, when this gauge reaches such elevated levels, technology shares tend to enter a multi-month adjustment period.
The bank said previous cycles suggest the pressure usually eases only after this measure falls back toward a range of 2 million to 4 million contracts. Until that happens, options-related positioning may continue to create vulnerability in the market.
High call-option activity can influence stock prices in several ways. When traders buy calls, market makers often hedge by buying the underlying stocks. That can add fuel to rallies. But the same mechanism can work in reverse when call demand fades or prices fall, causing hedges to be reduced and adding to selling pressure.
This dynamic has been especially important in large technology stocks, where heavy options activity has often gone hand in hand with sharp moves in the broader market.
Margin debt still points to extended risk
Margin accounts are another area of concern. Margin allows traders to borrow against their holdings to buy more securities. When prices rise, margin can boost returns. When prices fall, brokers can demand extra cash or force the sale of assets.
The NYSE net debit balance, which JPMorgan uses as a proxy for individual margin use, remains near extreme levels. The report compared current readings with those seen at the end of 2021 and in mid-2018. Both periods came before notable market pullbacks.
There has been a modest decline in margin exposure in recent weeks, but the report said the reduction does not yet appear large enough to remove pressure from the market. In other words, some deleveraging has occurred, but a more meaningful reset may still be needed.
This is where the link to digital assets becomes clearer. If a trader faces a margin call in an equity account, the need for cash can be immediate. Selling crypto holdings may be one of the fastest ways to raise that cash, especially for those who hold large positions in token markets alongside stocks and ETFs.
That selling can happen regardless of long-term views on Bitcoin, Ethereum or other digital assets. It is often driven by liquidity needs, not by a change in belief about the technology or the market.
Hedge funds shift exposure after semiconductor surge
The report said risk-parity funds appear to have largely reset their leverage levels, meaning they may be less of a force in current market conditions. Risk-parity funds typically spread exposure across asset classes based on volatility and often reduce leverage when markets become unstable.
By contrast, equity long-short hedge funds seem to have made more active changes, particularly in semiconductors. JPMorgan said these funds appeared to trim semiconductor exposure in July after leverage measures and sector correlations declined from multi-year highs reached in June.
The June performance data showed an unusual split. Broad equity long-short funds gained 1.2%, while technology-focused long-short funds rose 3.7%, even as major indexes declined. That pattern coincided with a 9.5% rise in a semiconductor ETF, while major U.S. cloud-computing stocks dropped 14.5%.
The divergence suggests that positioning inside the technology sector mattered as much as overall market direction. Traders who were long semiconductors and short weaker software or cloud names may have benefited, even during a period of broader market weakness.
Semiconductors have become one of the most crowded and closely watched trades because of demand tied to artificial intelligence, data centers and advanced computing. That popularity can create powerful rallies, but it can also increase the risk of sharp reversals when leverage is reduced.
Equity demand still provides a cushion
Despite the short-term risks, JPMorgan’s report said overall equity demand remains positive for the rest of the year. The bank estimated that retail traders have added about $550 billion to equities so far this year, and that the total may exceed $1 trillion by year-end. For the second half of the year, retail-related demand is projected at $482 billion.
Other large buyers are also expected to support the market. Sovereign wealth funds and central banks are forecast to contribute $110 billion in equity demand for 2026, with about half of that amount expected in the second half of the year.
Hedge funds managing about $1.4 trillion have bought roughly $20 billion of equities so far this year, according to the report. JPMorgan said little additional allocation is expected from that group, suggesting hedge funds may not be a major source of new buying from here.
On the supply side, pension funds and insurance funds are expected to sell about $470 billion of equities this year, including roughly $235 billion in the second half. Balanced mutual funds have already recorded net sales of about $210 billion, most of which occurred in June.
When all sources are combined, JPMorgan estimated annual equity demand at $4.75 trillion, compared with $2 trillion in supply. That leaves projected net demand of $2.75 trillion for the year. For the second half, the net figure is estimated at about $197 billion.
The bank views this positive demand balance as a stabilizing factor once the current deleveraging phase fades. In practical terms, the market may still have support underneath, but that support may not prevent near-term volatility while leverage continues to unwind.
Crypto markets face spillover risk
The pressure from deleveraging is especially relevant for traders in digital assets because crypto markets often react sharply to changes in global liquidity. When equities fall and margin calls rise, forced selling can move quickly into Bitcoin, Ethereum and smaller tokens.
JPMorgan strategist Nikolaos Panigirtzoglou has previously linked stress in traditional markets with pressure on digital assets through liquidity channels. The basic mechanism is straightforward: falling technology shares can weaken account balances, brokers can demand more collateral, and traders may sell liquid holdings to meet those demands.
In that environment, even strong crypto inflows on a single day may not be enough to erase broader concerns. Spot Bitcoin ETFs recorded $79.15 million in fresh inflows on July 16, showing some renewed demand. But that came after a difficult June, when the same products saw $2.73 billion leave over 10 straight days of selling.
That contrast shows how quickly sentiment can change. A day of inflows can suggest bargain hunting, but a long run of outflows points to caution and stress across the broader market.
Smaller and less liquid digital assets may be more exposed than Bitcoin or Ethereum. When selling pressure rises, thinly traded tokens can fall faster because there are fewer buyers at each price level. This can create larger gaps, sharper declines and more difficult exits for traders holding concentrated positions.
Risk management moves back into focus
The report does not say that a major market break is inevitable. It does, however, suggest that the cleanup from June’s leverage build-up is incomplete. That means traders may remain sensitive to sudden drops in equities, especially in technology and semiconductor shares.
The next few months may be defined less by long-term growth themes and more by mechanics: margin calls, ETF rebalancing, options hedging and cash needs. These forces can move markets even when economic data or company earnings are mixed rather than alarming.
For traders using borrowed money, the key risk is that market declines can force decisions at the worst possible time. A position that looks manageable during calm trading can become difficult to hold when volatility rises and collateral requirements increase.
For crypto traders, the main risk is spillover. Digital assets may not need their own negative catalyst to fall if pressure from equities leads to forced selling. That is why cross-market leverage has become one of the most important signals to watch.
JPMorgan’s broader view is that equity demand should eventually help stabilize markets. But before that support becomes more visible, the report suggests the market still needs to absorb the remaining unwind in leveraged ETFs, options exposure and margin accounts.
Until leverage falls closer to pre-April levels, sharp rebounds and sudden pullbacks may continue to alternate. For traders across stocks, ETFs and digital assets, the summer market remains driven by one central question: how much borrowed risk still needs to come out of the system.
Worried about deleveraging shocks? Learn how funding rates signal changing leverage and help you manage volatility across crypto markets.
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