Hedge funds are placing massive bets that the U.S. stock market will crash, raising alarms among financial analysts and Capitol Hill that 401(k) savings could be wiped out, the Daily Mail reports.
“As the new year unfolds, uncertainties persist regarding Trump’s policies, the global economic trajectory, and central bank actions,” said UBS Head of Alternatives Karim Cherif.
Throughout January, investors placed 10 times more short bets than long trades, which Wall Street views as a staggering shift indicating a growing unease about the U.S. economy under Trump.
“The increase in short bets against U.S. stocks likely reflects concerns about macroeconomic uncertainty,” concurred Bruno Schneller, managing partner at Erlen Capital Management.
While hedge funds stand to make hundreds of millions, potentially billions, from a stock market collapse, the real victims would be the millions of everyday workers who are relying on their 401(k)s and pensions for retirement.
The bearish sentiment is an about-face for the hedge funds that rushed to invest in Trump trades following President Trump’s reelection. As enthusiasm built over Trump’s aggressive tax cuts, tariffs, and deregulation, hedge fund assets reached a record $4.5 trillion.
DeepSeek’s $1 trillion wipeout in major U.S. technology stocks last week was the main catalyst that has sparked growing panic in Silicon Valley and Wall Street. The Magnificent Seven — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — all suffered massive losses.
Elliott Management, a prominent hedge fund with $70 billion in assets, warns that Trump’s policies could be fueling speculative bubbles that would “wreak havoc” on stocks should markets fall off a precipice.
DeepSeek has been accused of stealing Nvidia’s intellectual property to create AI semiconductor chips. It was also rumored that Chinese state media helped manipulate the market and the hype over the Chinese rival to OpenAI.
Some Wall Street analysts believe DeepSeek may have purposely manipulated the market and used insider influence, given the fact that DeepSeek’s parent company, High Flyer, is a Chinese hedge fund that uses algorithmic trading to place gigantic bets on market trends.
Analysts are suspicious of the exact timing of High Flyer’s trades right before U.S. markets experience major declines.
There is another fallout from a market decline that Wall Street is bracing for: Trump cracking down on Wall Street excesses in retaliation for the current short-selling frenzy.
If there is one thing Trump will not tolerate, it’s disloyalty, and it is being whispered on Capitol Hill that Trump views hedge funds’ about-face as a blatant betrayal of his trust.