Leveraged ETFs See Significant Gains Amid Shifting Fed Expectations and Strong Tech Performance
Last week saw a tech rally, weak U.S. jobs data, and strengthened bets on a September Fed rate cut, leading to significant gains in leveraged ETFs tracking gold miners, SoundHound AI, Alphabet, Broadcom, and biotech.
U.S. equities experienced significant upward movement last week, particularly within the technology sector and growth-oriented assets, as markets reacted to softer U.S. jobs data and increasingly solidified expectations for a Federal Reserve interest rate cut in September. This shift in sentiment propelled several leveraged exchange-traded funds (ETFs) to notable gains, reflecting investor optimism for sectors that typically benefit from lower interest rates.
The Event in Detail
The catalyst for much of last week's market activity was the August jobs report, which revealed the U.S. economy added a mere 22,000 jobs, falling significantly short of the 75,000 jobs analysts had forecast. This continued a trend of subdued job growth, with an average of less than 30,000 jobs added per month over the last four months, a pace considerably below what is considered a healthy labor market. This softer employment data significantly strengthened expectations for monetary policy easing, with the CME FedWatch Tool indicating a 93% probability of a 25-basis point rate cut by the Federal Reserve in September.
Individual corporate developments also played a crucial role in driving sector-specific gains:
Alphabet (GOOGL) shares advanced approximately 11.6% following a U.S. court's decision in an antitrust case. The ruling, described by analysts as "benign," allowed Alphabet to maintain its lucrative search deal with Apple, removing a significant overhang on the stock despite a separate $3.45 billion fine from the European Union. BofA Securities subsequently raised its price target on Alphabet, citing the favorable ruling.
Broadcom (AVGO) experienced a surge of over 9% after announcing a substantial $10 billion order from a new, undisclosed customer for its custom artificial intelligence (AI) chips. Speculation widely identifies OpenAI as this new client. The company also reported robust fiscal third-quarter results, exceeding revenue and earnings estimates, with CEO Hock Tan projecting accelerated AI revenue growth. Broadcom's AI revenue increased 63% in Q3 to $5.2 billion, with forecasts to reach $6.2 billion in the current quarter.
SoundHound AI Inc. (SOUN) reported record second-quarter 2025 revenues of $42.7 million, a more than 200% year-over-year increase, significantly surpassing analyst expectations. The conversational AI company also raised its full-year revenue outlook, driven by broad-based growth across its enterprise, restaurant, and automotive segments, with its Voice Commerce strategy gaining traction.
Amidst these developments, several leveraged ETFs posted significant returns. The MicroSectors Gold Miners 3X Leveraged ETN (GDXU) led the advance with a 26.5% gain, benefiting from steady gold prices and safe-haven demand. Other notable performers included Defiance Daily Target 2X Long SOUN ETF (SOUX) up 25.1%, Direxion Daily GOOGL Bull 2X Shares (GGLL) up 23.6%, Leverage Shares 2X Long AVGO Daily ETF (AVGG) up 19.1%, and Direxion Daily S&P Biotech Bull 3x Shares (LABU) up 17.7%. These gains occurred even as broader indices saw more modest movements, with the S&P 500 rising approximately 0.3%, the Dow Jones declining about 0.3%, and the Nasdaq 100 gaining 1%.
Analysis of Market Reaction
The market's robust reaction can be largely attributed to the interplay between the weaker-than-expected August jobs report and its implications for Federal Reserve monetary policy. The ongoing softness in the labor market data, including downward revisions to prior months' figures, has reinforced the belief that inflationary pressures are easing, providing the Fed with increased flexibility to reduce interest rates. Lower interest rates typically create a more favorable environment for growth stocks, particularly within the Technology Sector and biotech sectors, as they reduce borrowing costs for businesses and make future earnings streams more attractive when discounted at a lower rate. This rotation of investment capital from bonds into stocks is a classic response to a loosening monetary policy outlook.
The strong performance of key technology companies like Alphabet and Broadcom further underscored investor confidence in their growth trajectories and resilience against regulatory scrutiny. Alphabet's favorable antitrust outcome, which preserved its core search partnership with Apple, removed a significant element of uncertainty. Similarly, Broadcom's announcement of a major new AI chip customer cemented its position as a critical player in the expanding artificial intelligence infrastructure market, alongside NVIDIA.
Broader Context & Implications
The recent employment figures mark the fourth consecutive month of subdued job growth, signaling a potential cooling of the U.S. labor market. This trend aligns with the Federal Reserve's dual mandate of maintaining both low unemployment and stable inflation, providing more latitude for policy adjustments. While inflation remains a concern, recent data suggests price increases are moderating, further supporting the case for a rate cut to stimulate economic growth.
The significant gains observed in leveraged ETFs highlight the speculative interest and amplified returns possible in specific sectors under these conditions. For instance, the Technology Sector, represented by companies like Alphabet, Broadcom, and SoundHound AI, continues to demonstrate strong underlying business fundamentals and innovation, even amidst broader economic shifts. The Gold Miners Sector also benefited, reflecting increased safe-haven demand for gold in an uncertain economic environment.
> "The antitrust trial started in September 2023. Somehow even Google and Apple's $20 billion exclusive deal in Search will survive. It's unfathomable. The status quo remains. Analysts called the decision "benign" and said it removed a "significant overhang" on the stock."
Expert analysis from BofA Securities indicated that Alphabet's favorable court decision "removed a significant overhang" on the stock, allowing the tech giant to continue its dominance in the generative AI ecosystem. The substantial new order for Broadcom, potentially from OpenAI, underscores the accelerating demand for custom AI chips and positions the company prominently in the evolving AI landscape.
Looking Ahead
The upcoming Federal Open Market Committee (FOMC**) meeting on September 16-17, 2025, will be a critical determinant for market direction. With current probabilities heavily skewed towards a 25-basis point rate cut, any deviation from this expectation could introduce volatility. Investors will closely monitor the Fed's statement for indications regarding future rate trajectory and its assessment of economic conditions. Continued labor market data, inflation reports, and corporate earnings announcements, particularly from the technology sector, will also be key factors influencing market sentiment and performance in the coming weeks. The resilience and growth drivers demonstrated by major tech companies like Alphabet and Broadcom suggest their continued importance in overall market performance, while the high volatility in leveraged ETFs indicates ongoing opportunities and risks for speculative investors.
