Quant hedge funds suffered their worst day in over two years as market volatility surged, with systematic long-short funds down 1.4% by midday, according to Goldman Sachs. Funds heavily exposed to momentum strategies—buying rising stocks and selling falling ones—were hit particularly hard. Morgan Stanley noted this was the first time in at least five years its pure momentum index dropped more than 4% while the S&P 500 rose.

The turbulence coincided with the US Treasury announcing plans to double purchases of long-term government debt to stabilize the bond market. Meanwhile, Moderna shares nearly tripled after positive trial results for an experimental skin cancer therapy, adding to market whiplash. Despite Wednesday's losses, systematic long-short funds remained up 1.7% for the month.

The downturn follows a brutal July marked by a sell-off in AI-related stocks, catching many hedge funds off guard. High-profile casualties included Situational Awareness, a leveraged AI-focused fund forced to offload positions at steep discounts to Citadel. Even Jane Street, a dominant trading firm, reported a roughly $15bn loss last month from bets on AI stocks.

A top quant executive likened the situation to seismic activity, noting that after a major market event, tremors continue as participants reduce risk.