Key Takeaways
- • Elliott Investment Management, the roughly £60 billion New York hedge fund led by Paul Singer, warned in a letter to investors that a stock market slump could replace 'fear of missing out' (FOMO) with 'fear of getting obliterated' (FOGO), according to the Wall Street Journal.
- • Elliott compared current market conditions to the Roaring '20s that preceded the Wall Street Crash and the Great Depression, citing AI valuation hype, the US budget deficit, persistent inflation and private credit as key risks.
- • The tech-heavy Nasdaq is down 10% from its early October all-time high, placing it in correction territory and wiping out nearly £3 trillion in value, though it is not yet in a bear market.
- • Elliott said it is positioned to be protected on the downside and holds capital to deploy into bargains if market turmoil creates opportunities.
- • Rising inflation tied to US trade policy and the Iran war's energy price shock, alongside AI spending and sovereign debt concerns, is pushing borrowing costs to multidecade highs.
Summary
One of the world's top hedge funds has warned that a stock market slump could see investor psychology shift sharply from FOMO to FOGO. In a letter to investors, Elliott Investment Management, the £60 billion New York firm led by financier Paul Singer, compared current market conditions to the Roaring '20s that preceded the Wall Street Crash and the Great Depression. The letter said, "At present, virtually every alarm bell warning of a substantial bear market ahead is ringing."
Elliott highlighted risks tied to the hype around artificial intelligence, the US budget deficit, persistent inflation and private credit. It warned that the market's AI-driven rally, fueled in part by investors piling in out of fear of missing out, could reverse quickly. According to the Wall Street Journal, the letter said that disruption in only one or two of the factors behind the boom could trigger "a cascading, self-reinforcing unwind of this bull market."
The Nasdaq, whose constituents include Nvidia, Apple, Alphabet and Meta, is down 10% since reaching an all-time high in early October. That decline places the index in correction territory, though not yet a bear market, which is defined as a drop of 20% or more. The FTSE 100 is only about 2% below its peak. Elliott said it stands ready to act if turmoil creates opportunities, noting that its five-decade history includes fallow periods that have historically been followed by rare openings. "Our goal is to be well positioned – protected on the downside, and with capital to deploy into the bargains – when the tide turns again," the letter said.
The article notes that a multitrillion-dollar AI spending boom drove record highs this year, but investor nervousness is rising. US President Donald Trump's trade policies and the energy price shock from the Iran war have revived inflation globally, pressuring central banks toward higher rates. Combined with AI spending concerns and soaring government debt, this is pushing borrowing costs to multidecade highs. Jim O'Neill, former Goldman Sachs chief economist and former UK Treasury minister, said rising rates tend to expose the most vulnerable, and that it was surprising there had not been more bumps in the AI trade already.
Elliott highlighted risks tied to the hype around artificial intelligence, the US budget deficit, persistent inflation and private credit. It warned that the market's AI-driven rally, fueled in part by investors piling in out of fear of missing out, could reverse quickly. According to the Wall Street Journal, the letter said that disruption in only one or two of the factors behind the boom could trigger "a cascading, self-reinforcing unwind of this bull market."
The Nasdaq, whose constituents include Nvidia, Apple, Alphabet and Meta, is down 10% since reaching an all-time high in early October. That decline places the index in correction territory, though not yet a bear market, which is defined as a drop of 20% or more. The FTSE 100 is only about 2% below its peak. Elliott said it stands ready to act if turmoil creates opportunities, noting that its five-decade history includes fallow periods that have historically been followed by rare openings. "Our goal is to be well positioned – protected on the downside, and with capital to deploy into the bargains – when the tide turns again," the letter said.
The article notes that a multitrillion-dollar AI spending boom drove record highs this year, but investor nervousness is rising. US President Donald Trump's trade policies and the energy price shock from the Iran war have revived inflation globally, pressuring central banks toward higher rates. Combined with AI spending concerns and soaring government debt, this is pushing borrowing costs to multidecade highs. Jim O'Neill, former Goldman Sachs chief economist and former UK Treasury minister, said rising rates tend to expose the most vulnerable, and that it was surprising there had not been more bumps in the AI trade already.
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