JPMorgan believes deleveraging in technology and semiconductors has most likely entered its final stage

Overview

This JPMorgan Flows & Liquidity report focuses on the deleveraging process in technology, semiconductor, and memory-related stocks since June. The core conclusion is that investor deleveraging has progressed faster than expected two weeks ago, leaving more limited room for further deleveraging. The report also discusses cross-asset flows, positioning, ETFs, options, margin accounts, AI compute, and crypto regulation indicators.

Core views

The report argues that multiple leverage and positioning proxy indicators in technology and semiconductors have cooled markedly: leverage proxies for equity long-short hedge funds relative to the SOX index have largely retraced their April/May rise; elevated short interest in tech single names and semiconductor ETFs such as SMH and DRAM reflects low hedge-fund net exposure; momentum signals in tech-heavy indices such as the Nasdaq, Kospi, Taiwan, and Nikkei have collapsed, indicating that trend investors such as CTAs have largely exited prior longs; leveraged equity ETF issues are no longer a major source of volatility for the broader equity market; and risk parity leverage and retail small-lot call buying have also returned to more normal levels. One area still to watch is NYSE net debit balances in margin accounts, which remained high in June; whether July shows a meaningful decline will need confirmation from end-August data.

Analysis framework

The report uses a cross-asset positioning monitoring framework, combining indicators such as fund flows, speculative futures positions, trend-following momentum signals, mutual fund and hedge fund beta, risk parity leverage, ETF short interest, options trading, margin accounts, and non-bank investor asset allocation to assess market leverage and positioning. Its judgment on technology and semiconductor deleveraging does not rely on a single price trend, but on cross-validation from proxy variables reflecting multiple types of investor behavior.

Methodology notes

• Positioning monitoringCross Asset Positioning Monitor

  Cross-asset positioning percentiles

  Aggregates indicators such as futures positioning, CTA momentum, fund beta, risk parity leverage, hedge fund beta, client surveys, asset-allocation estimates, and short interest into a cross-asset positioning monitor.

• Trend followingTrend Following Strategy momentum signals

  Average of short-term and long-term momentum z-scores

  Uses the average z-score of short-term and long-term momentum signals to estimate directional positioning by trend-following investors such as CTAs in major equity indices.

• Leverage proxyVolatility ratio leverage proxy

  Volatility relationship between hedge funds and the SOX index

  Estimates whether semiconductor-related leverage has declined by using the daily disclosed volatility ratio of equity long-short hedge funds relative to the semiconductor SOX index.

• Risk appetiteNYSE Net Debit balance

  Net debit balance in margin accounts

  Uses NYSE margin debit balances minus credit balances in cash and margin accounts, normalized by S&P 500 market capitalization, as a proxy for U.S. retail investor margin-financing leverage.

• Market healthS&P500 equity market health map

  Six-dimensional market health indicators

  Assesses the future environment for the S&P 500 using percentiles of turnover, valuation, positioning, fund flows, economic momentum, and price momentum.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Technology and semiconductor equities

  Core focus of the research

  Strengths

  Deleveraging pressure has been significantly released, memory prices are still rising, and hyperscaler capex expectations have been revised upward.

  Weaknesses

  Previous crowded positioning and growth in leveraged ETFs created excessive volatility, while short interest in single names and ETFs remains high.

  Comparison

  Compared with two weeks ago, the report is materially less concerned about continued deleveraging.

  Risks

  If margin-account leverage does not decline or if AI demand/compute pricing weakens, support for a rebound may prove insufficient.

• Memory chip stocks

  One of the centers of recent deleveraging

  Strengths

  Rising memory prices provide fundamental support, and pressure from related leveraged ETFs has been partly released.

  Weaknesses

  The related leveraged ETF AUM ratio has retraced only about 55%, below the roughly 85% retracement for leveraged equity ETFs overall.

  Comparison

  Compared with broader technology/semiconductors, deleveraging in memory-related names may still not be fully complete.

  Risks

  A decline in memory prices or continued fund outflows would weaken support.

• U.S. equity indices

  Affected by cross-asset positioning and market health

  Strengths

  Risk parity leverage has normalized and CTA longs have pulled back, reducing potential selling pressure.

  Weaknesses

  NYSE margin-account leverage remained high in June, and July data are needed for confirmation.

  Comparison

  Position changes in equities relative to bonds and safe assets are an important input in the market health framework.

  Risks

  If July margin deleveraging is insufficient, retail investor leverage could still be a headwind for equities.

• Crypto assets and Bitcoin

  Affected by regulatory-legislation catalysts

  Strengths

  If the Clarity Act ultimately passes, it could support institutional-grade market infrastructure, DeFi and stablecoin development, on-chain liquidity migration, and tokenization of traditional assets.

  Weaknesses

  The probability of Senate passage this year has fallen to 37%, with the legislative process weighed down by disagreements over ethics, state enforcement, DoJ enforcement, DeFi, yield, and illicit finance.

  Comparison

  While equity deleveraging pressure is easing, the crypto market is facing weakening policy catalysts.

  Risks

  Further approval delays could mean that growth in tokenization and blockchain applications is absorbed more by existing market infrastructure rather than flowing to public crypto networks.

Key data

• Extent of deleveraging in leveraged equity ETFsabout 85%The ratio of leveraged equity ETF AUM to the market value of underlying stocks has retraced about 85% of the April/May increase.
• Extent of deleveraging in memory-related leveraged ETFsabout 55%The ratio for memory-related stocks has retraced about 55% of the April/May increase.
• Peak in small-lot client call-option buyingclose to 14 million contractsBased on OCC data, exchange-traded call-option net buying by customers trading fewer than 10 contracts peaked around June 5, 2026.
• Probability of Clarity Act passage this year37%Prediction markets show the implied probability of Senate passage this year has fallen to the lowest level of the year.
• Hyperscalers 2026 capex forecast$770bnRevised up from $758bn as of July 1, 2026.
• Hyperscalers 2027 capex forecast$1trRevised up from $925bn as of July 1, 2026.
• 4-week average inflow into all equity funds and ETFs$12.0bnWeekly fund-flow monitor as of the week ending July 22, 2026.
• 4-week average inflow into all bond funds and ETFs$17.8bnWeekly fund-flow monitor as of the week ending July 22, 2026.

Impact & implications

If the report is correct that deleveraging is nearing its end, forced selling pressure in technology and semiconductors may ease at the margin, and equities—especially the memory and AI chain—could receive fundamental support. However, margin-account leverage still needs to be validated by July data, and the lack of regulatory catalysts for crypto assets will constrain broader risk appetite.

Risks

• The July decline in NYSE margin-account leverage has not yet been confirmed; if it does not fall meaningfully, equities could still face deleveraging pressure from retail investors.
• If semiconductor and memory prices continue to decline, leveraged ETFs and momentum strategies could once again amplify volatility.
• If upward revisions to hyperscaler capex fail to translate into commercial returns from AI compute, fundamental support will weaken.
• Further delays to the Clarity Act or provisions that are unfavorable to institutional participation could weigh on crypto-market sentiment and on-chain liquidity.
• Some conclusions in the report rely on proxy indicators and cannot be treated as fully equivalent to actual holdings or leverage levels.

What to watch

• The July 2026 NYSE net debit balance in margin accounts to be released at the end of August.
• Whether momentum signals in tech-heavy indices such as the SOX, Nasdaq, Kospi, Taiwan, and Nikkei stabilize.
• Changes in short interest in SMH, DRAM, and technology single names.
• Whether the AUM ratio of leveraged equity ETFs relative to underlying stock market value continues to normalize.
• Memory prices, NVIDIA Hopper GPU rental prices, and hyperscaler capex expectations.
• Progress in Senate negotiations on the Clarity Act and the related prediction-market probability of passage.