A near record unloading of global technology shares by hedge funds last week triggered the largest momentum crash in about 40 years, Bloomberg reported. Despite the severity of the reversal, few on Wall Street are prepared to call an end to the artificial intelligence boom.
The rout capped six straight weeks of global AI stock sales and the largest 20 day liquidation on record, running 3 standard deviations below the historical average. Last week’s pullback also marked the biggest hedge fund leverage cut since the March 2020 crash and the fourth fastest drop in overall positioning since that period.
Since June, active de-grossing across long and short positions has exceeded 8% of total gross exposure, pushing hedge funds underweight the broader AI trade for the first time since early 2023 and lowering gross leverage for US long/short funds to the 10th percentile over the past year, Morgan Stanley prime brokerage data shows. Goldman Sachs prime brokerage data showed $20 billion in two week tech stock sales in October as net leverage fell 4.2 percentage points to 73.4%, while Apple became the only Magnificent Seven stock still outperforming the S&P 500 this year.
