Key Takeaways
- • Goldman Sachs estimates fundamental long/short funds fell 1.1%, systematic strategies 1.2%, and multi-strategy managers 1.4% by midday in a single session, the first time since the pandemic all three strategies suffered losses of that magnitude simultaneously.
- • The S&P 500 fell roughly 1.5% and the Nasdaq 100 dropped more than 3%, yet 335 S&P 500 members finished higher, meaning almost two-thirds of the index's constituents advanced.
- • Goldman's hedge fund VIP basket relative to the market's most heavily shorted stocks plunged about 4.2% in one session, its worst performance since August 2011, pushing the October loss on that spread to 10.4%.
- • The unwind of crowded AI positions is spreading across investment strategies, according to Goldman Sachs trading observations by Matthew Kaplan.
Summary
A sharp divergence between headline equity indices and the broader market dominated trading on Thursday, October 22, according to Goldman Sachs trading observations by Matthew Kaplan. The S&P 500 lost approximately 1.5% and the Nasdaq 100 surrendered more than 3%, while 335 members of the S&P 500 finished higher. Almost two-thirds of the index was advancing, with losses concentrated in a relatively narrow group of large technology companies carrying heavy capital concentration.
The heaviest damage fell on hedge funds. Goldman estimated that fundamental long/short funds, systematic strategies and multi-strategy managers were each losing more than 1% by midday, with declines of 1.1%, 1.2% and 1.4%, respectively. Goldman described this as the first time since the pandemic that all three strategies had suffered losses of that magnitude at the same time.
The more pronounced stress appeared in Goldman's hedge fund VIP basket relative to the market's most heavily shorted stocks. That long/short spread fell approximately 4.2% in a single session, its worst performance since August 2011, bringing the October loss on the spread to 10.4%. Goldman characterized the episode as an unwind of crowded AI positions spreading across investment strategies.
Goldman also pointed to developments in Treasury markets, where systematic strategies may be reinforcing a rally that began as investors reassessed the AI growth outlook. Goldman noted that historical evidence offers some encouragement for battered momentum investors, but suggested the latest positioning adjustment may be more complicated than a routine buying opportunity.
The heaviest damage fell on hedge funds. Goldman estimated that fundamental long/short funds, systematic strategies and multi-strategy managers were each losing more than 1% by midday, with declines of 1.1%, 1.2% and 1.4%, respectively. Goldman described this as the first time since the pandemic that all three strategies had suffered losses of that magnitude at the same time.
The more pronounced stress appeared in Goldman's hedge fund VIP basket relative to the market's most heavily shorted stocks. That long/short spread fell approximately 4.2% in a single session, its worst performance since August 2011, bringing the October loss on the spread to 10.4%. Goldman characterized the episode as an unwind of crowded AI positions spreading across investment strategies.
Goldman also pointed to developments in Treasury markets, where systematic strategies may be reinforcing a rally that began as investors reassessed the AI growth outlook. Goldman noted that historical evidence offers some encouragement for battered momentum investors, but suggested the latest positioning adjustment may be more complicated than a routine buying opportunity.
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