Key Takeaways
- • Hedge funds sold tech stocks at their fastest pace in two years during last Thursday's rout, according to Goldman Sachs strategist Tony Pasquariello, who told clients the selling casts serious doubt on investor conviction in the AI trade.
- • The Nasdaq 100 fell 2.9% on that Thursday, the worst Wall Street sell-off since July, before rebounding 1% on Monday; a Goldman index of hedge funds' most popular stocks posted its worst day since 2011, per Forbes.
- • Pasquariello says the S&P 500 has been flat for three months while AI stocks have steadily slid since the end of June, as investors question whether there will be enough power and capital to fund planned spending.
- • Goldman expects the bull market to continue with less momentum, and says growth in S&P 500 earnings will slow to 18% next year from 29% in 2026.
- • Pasquariello is advising clients to reduce exposure, saying he has "no issue with swimming a bit closer to shore" ahead of Microsoft, Alphabet and Amazon earnings this week.
Summary
Hedge funds sold tech stocks at their fastest pace in two years during last Thursday's sell-off, Goldman Sachs' Tony Pasquariello told clients, as reported by Bloomberg. He said the selling casts serious doubt on how much investors still believe in the AI trade. The Nasdaq 100 fell 2.9% that day, the worst Wall Street sell-off since July, before rising 1% on Monday. Forbes reported that a Goldman index of hedge funds' most popular stocks had its worst day since 2011.
Pasquariello wrote that "it felt like the market did cut into some bone." He noted that the S&P 500 has barely moved for three months, but that this masks a steady decline in AI stocks since the end of June. Investors piled into AI in the first half of the year and are now questioning whether there will be enough power and money to support all the planned spending.
The doubts have been building for months. In July, TSMC's shares fell 4% despite record revenue, and one AI-focused hedge fund was forced out of its bets. In September, calls to slow AI development weighed on chip stocks and sent SoftBank down as much as 13%.
Pasquariello does not recommend that clients take on more risk. He said he has "no issue with swimming a bit closer to shore right now" ahead of Microsoft and Alphabet results on Wednesday and Amazon on Thursday. In the last earnings round, investors rewarded cloud growth and punished heavy spending. He expects the bull market to persist but with "less punch and be messier along the way." Goldman expects S&P 500 earnings growth to slow to 18% next year from 29% in 2026.
Pasquariello wrote that "it felt like the market did cut into some bone." He noted that the S&P 500 has barely moved for three months, but that this masks a steady decline in AI stocks since the end of June. Investors piled into AI in the first half of the year and are now questioning whether there will be enough power and money to support all the planned spending.
The doubts have been building for months. In July, TSMC's shares fell 4% despite record revenue, and one AI-focused hedge fund was forced out of its bets. In September, calls to slow AI development weighed on chip stocks and sent SoftBank down as much as 13%.
Pasquariello does not recommend that clients take on more risk. He said he has "no issue with swimming a bit closer to shore right now" ahead of Microsoft and Alphabet results on Wednesday and Amazon on Thursday. In the last earnings round, investors rewarded cloud growth and punished heavy spending. He expects the bull market to persist but with "less punch and be messier along the way." Goldman expects S&P 500 earnings growth to slow to 18% next year from 29% in 2026.
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