Trend hedge funds saw worst week since 2024 as AI stocks fell, Goldman says
Trend-following hedge funds witnessed their worst weekly performance in two years last week, as concern about the eventual pay-off from hefty AI spending ignited volatility across stocks and bonds, a Goldman Sachs note seen by Reuters on Monday showed.
The Nasdaq 100, home to the world’s largest tech stocks, fell 5.5% last week, its biggest weekly fall since April 2025, when US President Donald Trump’s Liberation Day tariffs roiled world markets.
Last week’s stock market fall was led in part by a 10% weekly slide in shares of Meta, which reported strong earnings, but indicated it would need to raise more capital for its AI investments, which sent shivers through markets.
Bond markets were also volatile, as investors sought out the relative safety of US Treasuries, while selling the debt of more fragile economies, such as France.
Here’s what the note said:
• Systematic long-short hedge funds, whose algorithms ride market trends until they peter out, suffered their worst week since 2024, with a 2% decline, while fundamental long/short strategies drew down another 1.1%.
• Fundamental long short strategies are down 3.8% for the month so far, but still up 8.8% this year, while systematic strategies are down 1.1% so far in October, but up 18.7% so far this year.
• Single stocks collectively saw the largest de-gross activity - a general pulling back in positions - since late July, while US equities have been net sold for the third straight week, and in four out of the last five weeks, the note said
• Goldman said its prime brokerage desk reported $20 billion in selling of tech stocks over the last two weeks, close to July’s major unwind in which saw $23 billion in selling.
In his 2025 inaugural address, President Donald Trump said his return to the White House heralded the start of a new golden age for the US, especially for the economy.
He and his advisers contend his plans to slap tariffs on imports, deport some immigrants and curtail the arrival of others, cut personal and corporate taxes and slash regulations would unleash growth, reshore manufacturing, and lead to a boom in the economy’s productive capacity.
The US economy may indeed be undergoing profound change, though it is unclear how much of the transformation stems from Trump’s policies and how much from the rapid development of artificial intelligence technologies whose impact on jobs, prices and output remains to be seen.
The picture is somewhat mixed.
Gross domestic product measures the total output of goods and services in an economy, and the rate it expands year to year is often cited as a benchmark for economic success.
But there are natural constraints. At a basic level GDP represents the number of people working multiplied by the average output per worker. All things equal an aging society with a low natural population increase and a low immigration level -- as in the US right now -- can only grow so fast.
Economists see the underlying US trend growth rate -- the pace at which the economy could expand with full employment and stable, low inflation -- at around 2%.
Trump has said his policies could double that pace or do even better, but so far quarter-to-quarter growth doesn’t look that much different than it did in prior years.
Some things just haven’t turned out as the administration expected. Steep tariffs imposed in the spring of 2025 and expanded since then were in Trump’s view going to cut US dependence on imports and bring manufacturing jobs back to US shores.
The US Supreme Court has since tossed out some of the levies as unconstitutional, though the administration has plans to replace them with taxes imposed under other regulations. “We have very durable tariff authorities,” Treasury Secretary Scott Bessent said last week.
Evidence on how much reshoring is in train has been mixed. Meanwhile imports have continued to climb in no small part because of demand for components to build data centers to accommodate AI firms.
