IT Stocks Face Largest Sell-Off in Over a Decade Amid Systemic Deleveraging

The information technology sector has experienced its largest sell-off in over a decade. According to Goldman Sachs' position tracking report, AI momentum unwinding led to a systemic deleveraging event, with long-side selling of IT stocks ranking second highest in nearly a decade. The intensity of this round of unwinding was described as 'extreme' by Goldman Sachs.

Hedge funds significantly reduced leverage levels over the past two weeks. Total leverage has given back half of its year-to-date gains, and net leverage has turned negative year-to-date. July's deleveraging was an active systemic position reduction, exceeding ordinary profit-taking.

Goldman Sachs' risk preference indicator remains at 0.8, indicating that funds are reducing positions in specific sectors. Retail leverage peaked and fell in South Korea and Japan, with US retail investors also reducing holdings of semiconductor stocks.