A full-blown liquidity crisis is unfolding in equities, with institutional buyers stepping away and retail traders exhausted. Hedge funds are actively selling, with Goldman reporting the largest 2-week net selling in a decade. The effect? A brutal market selloff with momentum stocks down 21% from their peak. While this suggests the unwind may be in its late innings, gross hedge fund leverage remains stubbornly high, meaning more de-risking could still be ahead.
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Meanwhile, the options market is exacerbating the selloff, with $2.7 trillion in expirations last week leading to forced selling and intensified downside pressure. The VIX spiked to its highest level since mid-December, signaling heightened fear. If liquidity remains tight and buyers stay on the sidelines, markets could struggle to find a floor. Traders are now watching corporate buybacks, which are running at $5 billion per day, as a potential stabilizing force.

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