【The biggest deleveraging wave in a decade: Wall Street begins a mass retreat】
This global market sell-off is no longer just a valuation adjustment in tech stocks. Morgan Stanley data shows that global equity hedge funds saw their sharpest exposure reduction in more than a decade during the first week of November. Goldman Sachs data also shows that gross leverage among U.S. fundamental long-short funds fell by 8.7 percentage points in a single week, while net leverage dropped to 43.3%, a very low level compared with the past five years. Institutions are selling stocks and cutting positions across the board, and even the previously crowded AI trade is being unwound.
This deleveraging is not over yet. Total gross leverage among all prime brokerage clients tracked by Goldman Sachs remains at 314.2%, at the 85th percentile of the past year. But that figure includes macro and quantitative funds, so it should not be conflated with the 207.5% figure for U.S. fundamental long-short funds. JPMorgan, meanwhile, believes momentum trades have undergone a deep washout: the RSI for $QQQ has fallen below 30, and conditions for a short-term rebound are starting to build.
This is also bad news for crypto markets. Binance Research shows that total crypto market capitalization fell 9.1% in October, with net outflows of about $516 million from $BTC spot ETFs and about $1.6 billion from $ETH ETFs. The retreat by equity funds will further dampen risk appetite, especially as selling in tech stocks and AI assets could still spill over into crypto markets.
Taking all this into account, I believe we are currently in the midst of a major position-clearing cycle. Institutions have already sold off a considerable amount, creating room for a short-term rebound. But as long as macroeconomic pressure and capital outflows persist, buying the dip is still far from a sure thing. What is truly worth looking forward to is the return of risk appetite once deleveraging is over.
This global market sell-off is no longer just a valuation adjustment in tech stocks. Morgan Stanley data shows that global equity hedge funds saw their sharpest exposure reduction in more than a decade during the first week of November. Goldman Sachs data also shows that gross leverage among U.S. fundamental long-short funds fell by 8.7 percentage points in a single week, while net leverage dropped to 43.3%, a very low level compared with the past five years. Institutions are selling stocks and cutting positions across the board, and even the previously crowded AI trade is being unwound.
This deleveraging is not over yet. Total gross leverage among all prime brokerage clients tracked by Goldman Sachs remains at 314.2%, at the 85th percentile of the past year. But that figure includes macro and quantitative funds, so it should not be conflated with the 207.5% figure for U.S. fundamental long-short funds. JPMorgan, meanwhile, believes momentum trades have undergone a deep washout: the RSI for $QQQ has fallen below 30, and conditions for a short-term rebound are starting to build.
This is also bad news for crypto markets. Binance Research shows that total crypto market capitalization fell 9.1% in October, with net outflows of about $516 million from $BTC spot ETFs and about $1.6 billion from $ETH ETFs. The retreat by equity funds will further dampen risk appetite, especially as selling in tech stocks and AI assets could still spill over into crypto markets.
Taking all this into account, I believe we are currently in the midst of a major position-clearing cycle. Institutions have already sold off a considerable amount, creating room for a short-term rebound. But as long as macroeconomic pressure and capital outflows persist, buying the dip is still far from a sure thing. What is truly worth looking forward to is the return of risk appetite once deleveraging is over.