Elliott has warned that mounting financial risks, excessive leverage and speculation surrounding artificial intelligence could trigger a severe market correction, as the $80bn hedge fund reported returns of less than 2% for the first nine months of 2026, according to a report by The Wall Street Journal.

In an October investor letter, the firm, led by Paul Singer and Jonathan Pollock, compared current market conditions to the speculative excesses preceding the Great Depression, highlighting concerns over US fiscal deficits, persistent inflation, private credit exposure and debt-funded AI investment. Elliott warned that a sharp reversal in investor sentiment could trigger widespread selling and a prolonged downturn.

The cautious outlook comes amid subdued performance for the activist hedge fund, which recorded flat returns in the third quarter, leaving year-to-date gains below 2% through September. That compares with a nearly 13% total return for the S&P 500 and approximately 3% for short-term US Treasury bills over the same period.

Elliott reported losses across distressed debt investments and portfolio hedges linked to gold, currencies, equities and interest rates during the quarter. These were partially offset by gains in commodities, arbitrage strategies and credit hedges.

The firm is prioritising capital preservation and maintaining liquidity to exploit potential market dislocations, particularly in distressed credit, energy assets and activist investment opportunities in healthcare. Elliott has also recently established activist positions in PepsiCo and semiconductor software developer Synopsys.

Elliott expressed particular concern over the AI investment boom, citing circular financing arrangements between technology companies, rising debt-funded infrastructure spending and uncertainty over future profitability. The firm warned that a reversal in AI-related expectations could trigger a rapid unwinding of crowded positions, shifting market sentiment from fear of missing out (FOMO) to what it termed "fear of getting obliterated" (FOGO).