This week, concerns about the impact of artificial intelligence triggered turmoil in the U.S. stock market, affecting a series of hedge funds that had previously performed strongly at the start of 2026.
A report from Goldman Sachs' prime brokerage business shows that in one of the most severe market rotations in recent years, stock performance rankings were completely disrupted, with both fundamental and systematic long-short hedge funds recording their worst single-day performance since last November on Wednesday. Goldman estimates that multi-strategy equity portfolios also faced their worst day since last April.
The Goldman team, led by Vincent Lin, wrote: “Wednesday's market volatility hit nearly all stock strategies simultaneously, with more than two-thirds of funds in each index declining. The last time all three strategies fell more than 75 basis points in a single day was during the sell-off triggered by the COVID-19 pandemic.”
In this turmoil, momentum trading—a popular quantitative strategy of buying recent winners and selling losers—experienced its worst day in three years. JP Morgan's prime brokerage believes that such a sharp decline, combined with current positions being at high levels, may prompt hedge funds to reduce risk exposure.
The team led by John Schlegel wrote: “The performance of long-short and multi-strategy funds had previously benefited significantly from the alpha generated by tech stocks. The likelihood of further volatility and deleveraging appears quite high.”
This intense market rotation primarily stems from multiple concerns about artificial intelligence: whether the massive investments driving AI development will ultimately yield returns, and how this technology will affect the business models of existing software giants. For hedge funds, this shock occurred after a strong performance at the beginning of the year, with the largest batch of multi-strategy management firms reporting returns of about 1% to 2% in January.
The JP Morgan team estimated on Thursday that multi-strategy funds have declined 1.9% this month, long-short equity funds fell 1%, and quantitative funds were only slightly negative.
Despite previous profitable trades being thwarted by the extreme volatility, there were also winners in the market. The S&amp;P Global Index indicates that value strategies—investing in undervalued stocks—are on track to achieve their best weekly performance since 2022. Small-cap stocks also outperformed large-cap stocks, while defensive stocks performed better than high-volatility stocks.
Additionally, despite the largest scale of hedge fund deleveraging in the U.S. single-stock market since last October on Wednesday, Goldman analysts stated that this deleveraging was still “relatively mild.” Data shows that total and net exposures of hedge funds have continued to rise over the past year and remain at high levels

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Momentum trading faced its worst day in three years. JPMorgan believes that such a sharp decline, combined with current positions being at a high level, may prompt hedge funds to reduce risk exposure, making further volatility and deleveraging in the future look quite likely. A report from Goldman Sachs' prime brokerage shows that both fundamental and systematic long-short hedge funds recorded their worst single-day performance since November of last year on Wednesday, and multi-strategy equity portfolios are also expected to face their worst day since April of last year

- Concerns regarding the impact of artificial intelligence have caused volatility in the U.S. stock market, disrupting hedge funds that started 2026 strongly.  
- A Goldman Sachs report indicates that both fundamental and systematic hedge funds experienced their worst single-day performance since November, with over two-thirds of funds losing ground.  
- Despite significant losses for many strategies, value strategies investing in undervalued stocks are poised for their best weekly performance since 2022, while the overall hedge fund leverage reduction remains relatively mild.

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Hedge funds experienced their worst day in months this week, with more turbulence on the way?