Goldman Sachs: Hedge funds sell tech stocks at fastest pace in two years, AI trade conviction faces test

Goldman Sachs Group Inc.s Tony Pasquariello says hedge funds sold technology stocks Thursday at the fastest pace in two years as Wall Street suffered its biggest selloff since July, raising serious questions about conviction in the trade. While the S&P 500 has been range-bound for three months, the surface calm has masked a sustained drawdown in performance since late June as the AI trade unwinds, Pasquariello, who runs Goldmans hedge fund client business, wrote in a note to clients. For weeks, hedge funds have been cutting both net and gross exposure to stocks, he said. Have we seen capitulation? Its impossible to know for sure, but based on everything I can glean from the business network and my conversations with clients, it sure feels like the market has taken on some real damage, Pasquariello wrote, referring to Thursdays session. The Nasdaq 100 sank 2.9% that day. Tech stocks rebounded Monday, with the index up 1%. The pressure that sparked the selloff came partly from positioning and fundamentals, Pasquariello said in the note dated Oct. 23. After a strong first half, investors had built up heavy long positions in the artificial intelligence theme, but the market has since inflicted maximum pain on the consensus holding, he said.