The S&P 500 closed Friday at 7,489.72. It has been stuck around 7,500 in a summer stall that actually started May 14. Below the calm surface of the market, there has been plenty of turbulence.
Adding to last week's volatility was the forced liquidation of Leopold Aschenbrenner's Situational Awareness hedge fund. Apparently, Leo was unaware of the risks of leverage bets in the stock market. His fund grew from $225 million to $45 billion in under two years. It was also levered roughly four times, and the same concentration that produced those gains worked in reverse in July. His largest positions included Nebius, SanDisk, Micron, and CoreWeave, all down more than 15% last month, while his shorts in software moved against him. July was a good month to be long software and short semiconductors (chart). Leo was on the wrong side of both trades.
We continue to recommend market-weighting the S&P 500 Information Technology sector (table).
The recent selloff in the AI trade represents a buying opportunity, in our opinion. Citadel thought so when it snapped up Leo's distressed fund. Goldman Sachs, JPMorgan, and Bank of America issued margin calls. Citadel bought the entire public book in one trade on Thursday morning. Nebius, CoreWeave, and IREN rallied hard once the overhang cleared, though all remain well off their cycle highs (chart).
