"Warning Signs": An $80 billion fund compared the market to the period leading up to the Great Depression

The hedge fund Elliott Investment Management compared the current state of the markets—characterized by risky investments, excessive debt financing, and a frenzy surrounding new technologies—to the “Roaring Twenties” — the era preceding the Great Depression.

"At the moment, virtually all the warning signs pointing to a major bear market are flashing," the fund said in a letter to investors, which was reviewed by The Wall Street Journal.

Letters from the hedge fund founded by billionaire Paul Singer are traditionally characterized by gloomy forecasts regarding current major trends, the newspaper notes. In its third-quarter letter, the fund highlighted the risks of a growing U.S. budget deficit, persistent inflation, and private lending, as well as specific risks to the AI market. Among these, it highlights circular financing between AI model developers and infrastructure providers, debt-funded capital expenditures, and growing public discontent. According to Elliott’s assessment, the consequences for the market of any pricing issues with AI products or a decline in expectations regarding the scale of AI infrastructure development “could prove to be historic in their scale or, at the very least, just as severe as any bear market in the past few decades.”

“So many factors have converged to trigger this massive boom that a disruption in just one or two of them could be enough to reverse the market. This could lead to a cascading collapse of the bull market and a sharp shift from ‘Fear of Missing Out’ to ‘Fear of Getting Obliterated,’” the letter states.

Elliott also warned of market distortions caused by trades that the fund described as more akin to gambling than to investing. Elliott includes among such trades traders’ use of options with zero time to expiration and speculation on meme stocks.

“The stock market feels different now because it really is different. The winners keep winning, the losers are suffering increasingly crushing defeats, and the reaction to earnings reports is becoming increasingly unpredictable and volatile,” wrote Elliott managing partner Jesse Kon on social media platform X in October.

Elliott stated that its managers are currently focused on preserving capital and being prepared to act in the event of market turmoil. “Over Elliott’s half-century of existence, we’ve experienced periods of weakness, but historically these have been accompanied by market turbulence and followed by periods of rare opportunities. Our goal is to be well-prepared, protected against a downturn, and positioned with capital to invest in undervalued assets when the situation turns around again,” the letter states.

As a result, the fund, which manages $80 billion in assets, is underperforming the market. Elliott’s return in the third quarter was zero, and for the first nine months of 2026, the fund earned just under 2%, according to a letter to investors. By comparison, the broad-market S&P 500 index rose nearly 13% over the same period.

In the third quarter, Elliott’s losses stemmed from distressed debt and portfolio hedging instruments related to gold, currencies, equities, and interest rates. Profits came from commodities, arbitrage, and credit hedges.

Among the areas where Elliott sees opportunities are activist investing in healthcare companies, the acquisition of energy assets, and, in the long term, the purchase of assets from distressed sellers in destabilized credit markets. The fund’s recent activist positions include stakes in PepsiCo and Synopsys, a software developer for chip design.

This article was AI-translated and verified by a human editor