Goldman, JPMorgan issue margin calls as hedge funds lose 1.7% in a day

Margin calls from Wall Street's biggest prime brokers are forcing hedge funds to unwind leveraged AI bets after a single-day rout erased months of momentum-driven gains.

Goldman Sachs and JPMorgan Chase issued margin calls to hedge funds after AI-stock losses pushed three strategy types to drop more than 1% each on Tuesday, the first such simultaneous decline since the Covid-19 market turmoil of March 2020.

"This is the market's current risk management. This is quite basic," a person familiar with the matter at one of the banks said, adding that many margin calls were triggered automatically by clauses written into fund-bank agreements.

The Nasdaq 100 entered a technical correction, falling 10% from its June record high. Goldman's prime brokerage book recorded its largest single-day deleveraging since September 2025, with a negative three-standard-deviation deviation driven by single-stock unwinding in AI and momentum names. The AI momentum factor has plunged 41% in July, on track for its worst month outside the pandemic period. Semiconductor stocks bore the brunt: Sandisk has fallen 53% from its high and Intel 39%, while the Philadelphia Semiconductor Index has lost about a quarter of its value since late June.

The forced deleveraging threatens to amplify the selloff. S&P 500 concentration has reached extreme levels — the top 10 stocks now account for about 40% of index weight, exceeding the dot-com bubble peak. Goldman itself had about 16% of its prime brokerage risk exposure tied directly to AI memory stocks as of June 30, raising the risk of further cascading liquidations.

Leverage Built at Record Pace

Hedge funds had been piling into leverage at a record pace before the reversal. Goldman's data shows total hedge fund leverage in the first five months of 2026 posted the largest cumulative increase since the bank began tracking the metric in 2016, leaving the industry exposed when the AI trade turned.

Despite the single-day losses, hedge funds remain in positive territory for the year. Goldman data shows all three strategy types are still averaging returns above 10% year-to-date. But the speed of the drawdown — fundamental long-short funds fell 1.3%, multi-strategy funds 1.7% and systematic long-short funds 1% on Tuesday alone — has triggered risk-management protocols across Wall Street prime brokerages.

Cross-Asset Ripples

The selloff also spread beyond equities. The Cboe Volatility Index jumped, reflecting heightened demand for portfolio protection. The U.S. 10-year Treasury yield edged lower as investors rotated toward safe-haven assets, while the dollar strengthened against major currencies. WTI crude fell as the risk-off mood weighed on commodity prices.

This article is for informational purposes only and does not constitute investment advice.