Leveraged ETFs Hike Market Volatility: 8 Key Items Shaping the Stock Market Friday

These are the early headlines and other items poised to influence the market at the start of trading Friday. As we share this collection of market drivers, U.S. equity futures point to a weak start to the final trading day of the week.

1. Assets in leveraged ETF nearly doubled over two months, as investors scrambled for maximum exposure to the artificial intelligence trend… The total net assets for leveraged equity ETFs on U.S. equities doubled in just two months, climbing to $84 billion end of May this year from $39 billion in April. (MSN) Stocks looked set to fall on Friday as investors carried on ditching chip makers, putting the market on track to extend its slump from the previous session… Those stocks had helped propel the broader market higher for much of 2026, but they have struggled in recent trading sessions as investors question how much longer the artificial-intelligence boom can last. (Barron’s)

When examining what folks call the “AI trade,” our focal point has been on the adoption and usage of AI across companies, consumers, and other entities. Despite concerns and questions over how much longer the boom can last, the data and signals point to continued adoption and expanding usage. With AI coming to smartphones and other devices in a more meaningful way, those metrics are poised to increase further. That keeps us bullish on the Portfolio’s positions, and as we’ve said in the past, when the usage metrics start to slow, that is the leading indicator that will signal the potential risk of excess capacity.

While that is our roadmap, at times the market can have a different one. This time around it is being exacerbated by that leverage ETF-fueled boom, which is making it even more volatile. While painful in the near-term, when we look at the valuations we shared yesterday for the likes of Nvidia (NVDA), Palantir (PLTR), Marvell (MRVL) and others, before too long more value-oriented investors will emerge to take advantage of what is currently unfolding.

As those multiples contract further, we plan to join them in that effort when the time is right. With that in mind, we are keeping a close eye on key support levels for both the S&P 500 and the Nasdaq Composite.

2. A surprise breakthrough from Chinese AI startup Moonshot rippled through global markets Friday, sending AI and semiconductor stocks sharply lower as investors drew parallels with last year’s “DeepSeek moment” and questioned whether the industry’s enormous spending spree is becoming harder to justify. (Bloomberg)

In our view, this is adding to the questions raised above, but in a different way. The argument being put forth is that if companies start using Chinese models more and Anthropic or ChatGPT less, then Anthropic and ChatGPT will invest less. The next layer of that thinking is that it would mean U.S. firms would lower the capex and, in the end, chip demand would be affected.

Again, that’s the argument being put forth, not what we here at the Portfolio are thinking, but given the market’s current mood, it is clearly adding to the knee-jerk reaction we are seeing. What the argument leans on is that U.S. and other companies will adopt Chinese AI models, but odds are that companies will refrain from using them given a combination of data privacy and national security concerns. That suggests to us this concern is overblown, but as the data followers we are, we’ll track developments on this front.

3. The United States escalated its renewed bombing campaign on Iran on Friday by hitting bridges and an airport, and Tehran responded with strikes on U.S. bases across the Middle East… U.S. President Donald Trump has threatened to launch broad-based air strikes on Iran’s infrastructure, and has also declined to rule out a ground assault on Iran’s coast or islands. U.S. officials have said attacks on southern Iran are designed in part to give Trump options. But such moves risk provoking Iran to escalate in turn by hitting infrastructure of neighbouring countries, or further disrupt energy supplies by having its allies in Yemen attack shipping from the Red Sea. (Reuters)

We can add the above to the tech pressure weighing on the market today. For those of us who are focused on the duration of the renewed conflict between the U.S. and Iran, this suggests the possibility of a near-term resolution is off the table. Over the weekend, we’ll look to see if any diplomatic solutions emerge, but further escalation likely fosters an even greater rebound in energy prices…

4. The average price of diesel in the United States rose above $5 a gallon on Thursday, up 33 percent since the start of the war with Iran as the reignited conflict continued to inflate energy prices. The average national price on Thursday was $5.01, according to the AAA motor club, up 7 cents from the day before. Soaring prices of diesel can reverberate across the rest of the economy because of its many uses, including industrial machinery, commercial transport and electricity generation. (NY Times)

We can trace that move back to the upswing in oil prices, which has Brent crude above $85 per barrel this morning. That equates to the biggest weekly gain since April, and it is translating into gas prices knocking on the door of $4 per gallon. While not quite back at levels they were a month ago, per data from AAA, they are up more than 25% compared to year-ago levels.

As we keep a watch on the duration of the renewed U.S.-Iran war, we will also be listening to see what companies say about incremental pricing actions as we move deeper into the current earnings season. Our view is the greater the duration, the more likely consumers will pivot back to companies such as Portfolio holdings Costco (COST), TJX (TJX) and Amazon (AMZN).

5. Netflix’s second-quarter revenue grew 13 percent and its net income jumped close to 10 percent, the company said Thursday, in line with Wall Street’s expectations.

Audiences watched 97 billion hours of content in the first half of the year, about 2 percent more than they did in the same period the year before… The company reduced its expectations for third-quarter revenue to 11.7 percent, its lowest percentage increase in at least five quarters. As a result, shares dropped close to 9 percent in after-hours trading. (New York Times)

In response to last night’s earnings report and guidance, Netflix (NFLX) shares are under pressure. Adding to what the company shared, we are seeing a rash of price targets being cut given the lack of upside following the company’s recent subscription plan price hike in the U.S. We also agree that the company’s move to reduce engagement disclosure from two-times per year to one-time per year beginning in 2027 is “not a great look.” We’ll have much more to say on NFLX shares and our plans for it in the Portfolio in a more focused note to Pro Portfolio members later this morning.

6. U.S. beverage maker Coca-Cola said one of its dairy subsidiaries was hacked and that it’s shutting down its operations for the foreseeable future. The multinational giant said in a disclosure with the U.S. Securities and Exchange Commission that its Fairlife dairy company was hit by ransomware and that its production systems are affected. The company said that its Fairlife production operations across the United States are “temporarily suspended.” (TechCrunch)

Despite the recent selloff in cybersecurity stocks, Coca-Cola (KO) being hacked to such a degree that it not only impacts production but leads the company to register a filing with the SEC, is a sharp reminder that companies must protect their businesses and other crown jewels. This development gives us even more confidence in our recently increased price target for First Trust Nasdaq Cybersecurity ETF (CIBR) shares that we own in the Portfolio.

And we’ll spare you the politics, but as we watched President Trump’s address last night, our thinking was all about cybersecurity. As Marvel Comics’ Stan Lee was fond of saying, “Nuff said.”

7. Economic data today per TipRanks: Housing Starts & Building Permits (June), Import/Export Prices (June), Industrial Production & Capacity Utilization (June), University of Michigan Consumer Sentiment (Preliminary July).

8. Companies reporting today per TipRanks: Fifth Third Bancorp (FITB), Travelers (TRV), Truist (TFC).

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At the time of publication, TheStreet Pro Portfolio was long AMZN, CIBR, COST, MRVL, NFLX and TJX.