(Bloomberg) -- It took less than a day for the great Donald Trump-Elon Musk split to reshape debates over billionaire power and influence in American capitalism.
At another level, the breakup was a reminder of something else: the perils of personality-driven investing, a growing and lucrative business for the Wall Street bankers cranking out, rapid-fire, a never-ending array of new financial products. Few have done more to fuel these gambling spirits than the president and the world’s richest man.
In a matter of hours, a loosely connected web of Musk-linked trades — and a few tied to Trump — cratered as the public feud escalated. Dogecoin sank 10%; a publicly traded fund dangling SpaceX exploration for retail consumption slid 13%; leveraged bets amping up returns on Musk-related ventures lost a quarter of their value or more. Shares of Trump’s media company slid.
The spat — ignited by the deficit-expanding tax bill threatening Tesla’s electric-vehicle subsidies — cooled on Friday and asset valuations steadied. But by then, investors had gotten the message loud and clear. “You can go from being an incredible beneficiary one moment and then being bludgeoned the next,” said Peter Atwater, founder of Financial Insyghts. “Anytime you are investing in something that is as crowded as these Elon Musk-related vehicles, you are going to be either the beneficiary or the victim of his standing.”
The breakup drama was backdrop to a comparatively sleepy week in regular markets. The S&P 500 ended the week 1.5% higher, while the extended FANG index — which doesn’t include Tesla — hit a record. The dollar touched its lowest level in about two years. Ten-year Treasury yields jumped more than 10 basis points this week, as Friday’s jobs data eased concerns about an imminent economic slowdown.
But for the casino crowd on Thursday, things got ugly. These investors aren’t just trading stocks or crypto, they’re paying for proximity to dominant personalities. Tesla is a financial avatar for Musk’s ambitions. Trump’s political resurgence reverberates across his media company, his fast-expanding crypto empire and MAGA-theme products across the broader industry. Each post, endorsement and headline is a chance to pull capital into the retail investment machine.
It hasn’t just drawn in risk junkies — it’s built an entire product architecture, from speculative bets to more conventional funds tied to the fortunes of billionaire Musk. Vehicles like Baron Partners Fund and the Ark Innovation ETF got caught up in the selloff before markets rebounded on Friday.
Tesla’s sharp rout — its worst week since 2023 — was fueled by projections that the company faces a $1 billion hit to full-year profit, if it loses a tax credit from Trump’s bill. Meanwhile, the president’s businesses pushed deeper into the financial ecosystem. His media company was one step closer to launching the Truth Social Bitcoin ETF, the latest in a string of crypto-linked assets and ‘MAGA’-themed investment vehicles.
For those with the nerve to dive into the newfangled, the gains have been eye-popping at times. A closed-end fund with Space-X exposure, Destiny Tech100 Inc., surged about 500% in just a month after the Nov. 5 election. Dogecoin went from 15 cents to above 43 cents in November, when Ark surged by 26% in less than two weeks.
Speculative spirits have run high since the pandemic but soared anew after Trump buddied up with Musk on the campaign trail and won the White House, backed by the $250 million the Tesla founder spent on the election.
The meme ethos was cemented when Musk’s program to cut government spending took its name from a crypto token born as a canine-themed joke.
“I put him in the separate category of the Zeus of personality cults, beyond anything that has ever happened,” said Jay Hatfield, CEO of Infrastructure Capital Management. “We’ve never had anybody running a major company like him.”
The result has been a speculative spasm that, until this week, was often insulated from old-school markets convulsed by Trump’s on-again-off-again tariff threats. An element of the craze that infuriates Wall Street’s old guard — the near-impossibility of forming a valuation case around things like crypto tokens and public vehicles for private holdings — proved a virtue at a time of rampant economic uncertainty.
“Retail traders — the bro trade component of retail — they’ve never really cared much about fundamentals,” said Dave Mazza, Chief Executive Officer at Roundhill Investments who in February launched a Tesla-focused product. “These folks really believe in the narrative on stocks like Tesla and Palantir Technologies Inc. Some of these names are really dependent upon a dream premium and not what they actually do for business.”
Another case in point: 16% of ETFs launched this year offer single-security strategies that use either leverage or options overlay, according to Bloomberg Intelligence’s Athanasios Psarofagis. That’s a record. Many target retail investors who trade aggressively, take on higher risk, and use them for dip buying.
“The rise of degen leverage and derivative products on the highest profile stocks makes a mockery of the idea that the market is ‘allocating capital’ in any rational way,” says Dave Nadig, an ETF industry expert. “It’s immensely profitable. That’s why very few people are even suggesting there are any issues in ETF land.”
--With assistance from Vildana Hajric and Isabelle Lee.