Macro Hedge Funds to Dump $45-B In Equities, Morgan Stanley Predicts

Computer-driven macro hedge fund strategies have sold $20 billion in equities and are set to shed at least another $25 billion over the next week after the stock rout, in one of the largest risk-unwinding events in a decade, Morgan Stanley said in a commentary to institutional clients, Carolina Mandl reported for Reuters.

After disappointing earnings reports from Tesla and Alphabet, investors heavily ditched stocks. I Photo: Austin McKinley Wikimedia Commons

After disappointing earnings reports from Tesla and Alphabet, investors heavily ditched stocks, with the tech-heavy Nasdaq Composite dropping 3.6% on its worst day since October 2022.

"The volatility of the last two weeks started out being very rotational," said the bank, referring to a recent investors' rotation to small- from mega caps. "But that has now morphed into a broad index deleveraging (on Wednesday)."

If volatility persists in the coming days, the sell-off would rapidly increase, Morgan Stanley said in their commentary, declining to comment further.

An additional 1% day-drop in global equities could spark sales of $35 billion, and macro hedge funds could dump up to $110 billion in a 3% day fall. The main US stock indices were positive on Thursday afternoon, after stronger-than-expected GDP data.

James Koutoulas, chief executive officer at hedge fund Typhon Capital Management, told Reuters that even after Wednesday’s sell-off, momentum stocks remain trading above their intrinsic value.

Historically, he said interest rate hikes have been followed by economic downturns.