Billionaire Paul Singer says Wall Street faces ‘obliteration’

For most of 2026, the risk of not entering the stock market seemed greater than the risk of buying there. S&P500 gained nearly 13% through September, and investors wary of the artificial intelligence boom had to look aside as the market rose. Then October gave them a glimpse of what might happen when investors started wondering how soon all that spending would pay for itself. THE Nasdaq Composite fell 5.3%, while the S&P 500 slipped 0.9%.

For billionaire hedge fund manager Paul Singer, the sale is an early test of a warning his company had just sent to investors.

Paul Singer’s warning goes beyond AI actions

Singer’s Elliott Investment Management, which reported managing $80.3 billion as of June 30, has a name to describe what can happen when the fear of missing out fades. In a letter to investors reviewed in October by The Wall Street JournalElliott called it FOGO, or “fear of being erased.” The firm drew parallels to the speculative years before the Great Depression, pointing to persistent inflation, federal deficits and debt-financed bets on AI infrastructure.

Elliott’s argument is that a reversal in one or two of the factors driving the rally could trigger a selloff. If investors lose confidence in the returns from new data centers, lenders could charge more to finance them. This can make it harder for developers to maintain spending and leave their suppliers facing slower growth than shareholders expected. Signs of tension appeared before the end of October. Jeffrey Gundlach had already reported widening spreads on riskier AI debt.

October may have brought Singer a quick win

Until September, investors had good reason to wonder why Elliott’s caution had convinced them. The company’s reported returns were flat in the third quarter and below 2% for the first nine months, about 11 percentage points behind the S&P 500. Elliott says it uses hedges to protect against adverse market conditions. His letter to investors lays out the other half of this strategy. If prices fall enough, the company wants to have cash to buy from investors who need to sell.

October may have changed things. THE Nasdaq-100 fell 6.6% and Reuters reported that concerns about AI spending outpacing near-term cash generation contributed to the month-end selloff. Elliott might have outperformed if its hedges had cushioned the decline, even though reported results end in September. October gave Singer an initial vindication of the risk itself, as investors began to take a closer look at the risk. how much money AI spending leaves behind.

The rest of the market tells a different story. Nasdaq’s October analysis showed that nine of the S&P 500’s 11 sectors rose and the equal-weighted version of the index gained 5%. This contrasts sharply with the 0.9% loss in the overall index. Investors might recognize the risk of an AI bubble and always find places to put money to work. October’s winners show just how much room for maneuver there was within the stock market itself.

Key to remember

Paul Singer’s warning is that it may only take one or two events going wrong to derail a recovery based on cheap finance and high expectations. October offered a first glimpse of how this might get off the ground. As investors wondered when AI spending would pay off, the Nasdaq-100 fell 6.6% and nine of the S&P 500’s 11 sectors rose. The sell-off exposed a vulnerability in AI trading, while the market as a whole held up.

Singer may be right about a deeper slowdown. In the meantime, take inspiration from what Elliott is trying to do. Keep enough cash on hand so that a massive sale gives you the opportunity to buy at lower prices. You may still face hidden concentration risk if the same handful of AI stocks appear in several of your funds. Check how much you own in total and reduce it if the combined position is larger than expected.

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