Messy Days
First came the “AI is over” trade on Wednesday which of course was followed by a sharp de-risking short squeeze on Thursday, and then chaos ensued on Friday.
The view
Prime broker performance and positioning tracking is flashing red warning signals for HF results MTD.
Goldman Sachs estimates that Fundamental L/S, Global Systematic L/S and Multi-Strats were all negative on Thursday October 15th. They go on to note the interesting dynamics where these three strategies never fell more than 80bps each on a single day from 2020 to 2025 and this year it has now happened three times; Feb. 4th (“Sass-apocalypse”), Jul. 28th (Situational blow-up), and now yesterday.
The violent movements adversely impacting hedge fund strategies YTD appear to be driven by the vicious combination of crowded positioning driven by narrow market leadership combined with ongoing elevated macro instability.
Global markets & economic data
- US
The Sep. PPI experienced its sharpest increase since 2022 amid worrying signs of inflation broadening beyond food and energy. Mich. Sentiment figures remain near all-time lows. Sep. Existing Home Sales picked up slightly M/M, with activity in the South and West offset by a drop in the Northeast.
- Switzerland/UK/Europe
Swiss consumer confidence edged up but failed to meet expectations. UK Aug. GDP was up 0.1%, ahead of expectations for a contraction. Germany’s Sep. wholesale prices jumped by 8.7% y/y.
- Japan/China
Japanese Machinery Orders jumped 18.6% y/y. China’s trade surplus widened to $133.5b in Sep., its second largest surplus on record driven by Chinese high-tech exports.
Disclaimer: This material has been prepared by MASTERPIECE ADVISORS for informational purposes only and should not be construed as financial advice. Investments in hedge funds are speculative and involve a high degree of risk. This material is confidential and may not be disclosed without the express written approval of MASTERPIECE ADVISORS.
Weekly market notes every Friday from Aaron Sweeney after the closing bell.