The Direxion Daily Semiconductor Bull 3X Shares (SOXL) climbed nearly 15% to $209.62 in early trading Monday, staging a sharp recovery after last week's dramatic selloff. The bounce came as semiconductor stocks rebounded from a historic rout that erased roughly $1.3 trillion in market value across the sector.
SOXL had plunged 30.51% at Friday's close, while its bearish counterpart, the Direxion Daily Semiconductor Bear 3X Shares (SOXS), surged 31.54%. On Monday, SOXS dropped about 16% as the rebound took hold. The wild swings underscore the extreme volatility inherent in leveraged ETFs, which are designed to amplify daily returns but can suffer from decay over longer periods.
Direxion and regulators have repeatedly warned that these funds reset their leverage daily, making them unsuitable as long-term holdings. The funds target 300% of the daily performance—or inverse performance—of the NYSE Semiconductor Index, but compounding effects can cause returns to deviate significantly from three times the benchmark over multiple days.
Among unlevered semiconductor ETFs, the iShares Semiconductor ETF (SOXX) rose roughly 5.2% and the VanEck Semiconductor ETF (SMH) added about 4.6%, reflecting the more muted moves of traditional funds. The disparity highlights how leverage amplifies both gains and losses, making SOXL a high-risk instrument for traders.
Prior to Friday's collapse, SOXL had been one of the most direct—and volatile—ways for retail investors to bet on the AI-driven chip boom. According to Direxion, the fund was up a staggering 433.76% year-to-date and 1,291.60% over the past 12 months as of May 31. However, the sharp reversal has forced many traders to reassess their strategies, with analysts emphasizing the need for strict trading discipline.
Friday's selloff was triggered by a combination of factors. Broadcom's outlook disappointed investors betting on larger gains from its custom AI-chip unit, while stronger-than-expected U.S. jobs data raised the odds of a Federal Reserve rate hike later this year. The PHLX Semiconductor Index tumbled 10.3%, its steepest one-day decline since March 2020. Nvidia dropped nearly 6%, Micron sank 13%, Marvell gave up 17%, and AMD fell almost 11%.
Despite the carnage, some analysts remain bullish on the sector's long-term prospects. Ohsung Kwon, chief equity strategist at Wells Fargo, told Reuters that while the sector was overbought, he didn't believe the bull run was over. Dennis Dick, a proprietary trader at Triple D Trading, noted that the usual tactic of buying every dip did not work on Friday.
Marvell Technology shares jumped over 9% Monday after S&P Dow Jones Indices announced the chipmaker will join the S&P 500 before the open on June 22, a move that typically triggers buying by index funds. The Philadelphia Semiconductor Index remains up more than 72% for the year even after Friday's decline.
As traders look ahead, the focus shifts to upcoming U.S. inflation data and central-bank meetings this week, which could provide further direction for the chip sector. Lars Skovgaard, senior investment strategist at Danske Bank, noted that the market had gone a long way without a correction, and Monday's rebound may offer only temporary relief.
