Wall Street Risk Appetite Grows: Can ETFs Stay Steady?

The stock market continues its record-breaking performance in 2025, fueled by surging mega-cap stocks and speculative trading. Investors, seemingly undeterred by the ongoing economic uncertainties, are increasingly drawn to riskier assets in the pursuit of higher returns.

Speculative Stocks Take the Lead

Palantir PLTR, often labeled as the typical meme stock, and Super Micro Computer SMCI, the most shorted stock in the S&P 500 in April, have emerged as standout performers this year — significantly outpacing the broader market.

While AI giants like NVIDIA NVDA and Meta META have been steady in recent times, investor enthusiasm is increasingly driven by a fear of missing out (FOMO), particularly on high-risk trades.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, noted that retail investors are playing a major role in the recent rebound from April's lows, as quoted on Yahoo Finance.

High-Risk Assets Outpace the S&P 500

Goldman Sachs data revealed that the riskiest market segments — including high-beta momentum stocks, bitcoin-sensitive indices, and unprofitable tech — significantly outperformed the S&P 500 in Q2. This pointed to a growing appetite for speculative momentum plays, as quoted on Yahoo Finance.

Newly public firms such as the stablecoin issuer Circle CRCL and AI cloud provider CoreWeave CRWV have seen explosive gains of nearly 500% and 300%, respectively. Similarly, Quantum Computing QUBT shares have surged over 60% in the past month, benefiting from a sector-wide rally.

Note that over the past month, leveraged exchange-traded funds (ETFs) like Leverage Shares 2X Long COIN Daily ETF COIG, Defiance Daily Target 2X Long ORCL ETF ORCX and Defiance Daily Target 2X Long RKLB ETF RKLX have gained about 78%, 67% and 60%, respectively.

Warnings From Wall Street

While the rally continues, some experts are issuing alarming signals. Chad Morganlander, Senior Portfolio Manager at Washington Crossing Advisors, expressed concern over the speculative nature of the market.

Bespoke Investment Group reported that nearly 420 stocks in the Russell 3000 rose by over 50% between April 8 and June 27, with 14 of them surging more than 200%. Strikingly, only four of these high performers were profitable. During the same period, unprofitable companies gained an average of 36.4% compared to 15.6% for stocks with the lowest price-to-earnings ratios, as quoted on Yahoo Finance.

Trump’s Tariff Woes Return

Amid this speculative rally, President Donald Trump is rolling out a new wave of tariffs. In stark contrast to traditional trade negotiations, Trump is personally issuing letters to countries with imposed rates, mostly in the range of 25% to 35% but some as high as 60% to 70%. So far, 14 countries have received tariff letters, with Japan and South Korea next in line for 25% tariffs.

Markets Remain Calm — for Now

Despite the growing tensions, markets remain relatively steady. Trump’s recent tax cuts continue to provide some support, but experts caution that the true effects of his trade moves may not be felt until later this summer.

ETFs in Focus

Against this backdrop, investors can exercise some caution and invest in quality ETFs.  ETFs like WisdomTree U.S. Quality Growth Fund QGRW and FlexShares US Quality Large Cap Index Fund QLC could be good options. Each of the duo added about 4% over the past month. The ETF QGRW has an asset base of $1.52 billion the ETF QLC has an asset base of about $540 million.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research