An executive at Goldman Sachs has raised concerns about the potential for increased volatility in the artificial intelligence and semiconductor sectors due to high levels of leverage in the market.
In a recent interview, Shawn Tuteja, a managing director responsible for ETF and custom baskets volatility trading, expressed his belief that the market may not be fully appreciating the risks of heightened volatility.
“My concern regarding the current market situation, particularly in the semiconductors and AI sectors, stems from the significant amount of leverage present in the system. There has been a proliferation of leveraged ETF products offering 2x or 3x exposure to these sectors. These products, known as short gamma products, require rebalancing by buying or selling large amounts based on market movements to maintain their leverage. This can lead to amplified volatility in both directions.”
“As leverage and exposure increase, there is a risk that even a small negative development could trigger a significant sell-off due to deleveraging forces in the market. What might have initially been a 3% decline could quickly escalate to 10%, mirroring the rapid gains we have witnessed in the past.”
Tuteja emphasized that while he anticipates increased volatility, he does not believe that the market is currently in a bubble.
Stay updated with X, Facebook, and Telegram
Don’t miss out on the latest updates – Subscribe to receive email alerts directly to your inbox
Explore The Daily Hodl Mix
Image Source: Midjourney
