AI Trade Unravels Before US Midterms
· Business · Bloomberg
Hedge funds suffered one of their bloodiest Octobers in recent memory as the AI-driven rally that powered equity markets through 2023 and early 2024 unravelled. The sector rotation hit crowded long positions in megacap technology stocks, forcing rapid deleveraging across multi-strategy and equity-long-short funds. Bloomberg data shows the HFRX Equity Hedge Index posted its worst monthly drop since March 2020, while the HFRX Macro/CTA Index also declined. The selloff accelerated after disappointing earnings from several AI-exposed companies and ahead of the November US midterm elections, which added policy uncertainty. Prime brokers reported elevated margin calls and risk reductions across the industry.
Why it matters
Heavy hedge fund losses can trigger broader market volatility and reduce liquidity, affecting institutional investors and pension funds that allocate to these strategies. The AI trade's reversal signals a shift in market leadership that could reshape equity portfolios globally.
Read the original report — Bloomberg
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