Has Wall Street turned the American stockmarket into a giant casino?

GDP is growing at 3.4%, yet major players are losing money due to daily leverage.

Speaking on CNBC’s “Squawk Box”, Bill Ackman, founder of Pershing Square, argued that the American stockmarket is fundamentally broken. He estimates that Wall Street has effectively reverted to a casino model, with excessive leverage reaching 95%. Every few days, the shares of major public corporations experience anomalous swings that defy traditional analysis. The proliferation of risky derivatives encourages market participants to treat stocks as a get-rich-quick scheme, creating a dangerous imbalance for the entire American financial system.

The paradox is that this destabilisation is unfolding against a backdrop of seemingly impeccable macroeconomic statistics. According to fresh data from the Bureau of Economic Analysis, US GDP grew by 3.4% in the third quarter year-on-year, the fastest expansion in twelve months. Strong consumer demand is driving the economy, yet the financial sphere operates by its own rules. Robust national growth no longer protects investors from sudden crashes, and the market capitalisation of tech giants can shift by tens of billions in a single trading session.

The deep disconnect between fundamental business earnings and market value poses three key questions for investors. Why are major hedge funds losing capital in the tech sector despite strong US economic growth? How is record speculative leverage destroying traditional institutional risk-management strategies? And finally, how long can the market function as a casino where asset prices are detached from real value? This analysis from our research desk answers these questions by exposing the mechanics of the current crisis on Wall Street.

The first crack in the picture of general prosperity appeared in the regulator’s monetary policy. Despite strong production and consumer sector figures, price pressure in the American system has not disappeared. The PCE price index for September unexpectedly accelerated, finally dashing investors' hopes for an imminent and inevitable reduction in borrowing costs. Federal Reserve officials chose to hold the key interest rate steady at their last meeting, but rising inflationary dynamics leave the regulator with little room for manoeuvre.

Fears that the Fed might find itself behind the curve are forcing the regulator to resume its rate-hiking cycle as early as the December meeting. The prospect of further tightening credit conditions has triggered turbulence in the US Treasury market. A rapid rise in bond yields has begun to drain liquidity from risky assets, upending the calculations of investors accustomed to financing long positions with cheap borrowed leverage.

This storm in the government bond market, combined with a sharp correction in the tech sector, has dealt a direct blow to Wall Street’s largest managers. In October, industry-leading hedge funds faced significant losses. Even the most sophisticated mathematical models and multi-strategy portfolios with distributed risks could not withstand the simultaneous decline in US government debt and the revaluation of the overheated artificial intelligence sector.

The clear picture of continuous economic growth has collapsed against an anomaly: while GDP is formally expanding, the country’s largest capital pools are suffering deep losses. Professional managers have become hostages to the rising cost of short-term money and forced liquidations. As a result, the financial system faces a situation where institutional players, instead of stabilising the system, are themselves generating new waves of sell-offs as they attempt to shed devalued assets.

At the heart of the current breakdown in market mechanics lies the explosive growth of short-term derivatives, which has turned the US stockmarket into a giant casino. The mass proliferation of daily options, perpetual futures contracts and sports-betting platforms has shaped a new psychology among market participants. Investors have stopped analysing fundamental indicators and financial statements, switching instead to an aggressive pursuit of ultra-fast returns. A flood of speculative capital has entered the system, using extreme leverage of up to 95% of the transaction value.

The use of such extreme leverage has fundamentally changed the physics of price movement on Wall Street. A small fluctuation of just one or two percent now instantly triggers a cascade of forced liquidations of margin positions. Market makers, who sell derivatives to retail and institutional players, are forced to continuously hedge their own risks through the automatic buying or selling of underlying stocks. As a result, technical liquidity flows in the options market have begun to dictate the price dynamics of real corporate shares.

This mechanism severs the link between the real state of a business and its share price, turning even large tech companies into highly volatile assets. When several negative factors overlap—be it the revaluation of AI investments or a jump in bond yields—the speculative leverage works in reverse. Algorithmic programmes used by market makers begin to dump stocks simultaneously, provoking panic selling even in fundamentally sound securities.

This is the volatility trap into which the largest institutional managers have fallen. Their complex multi-strategy models, designed to protect capital from market risks, proved useless in the face of chaotic liquidations with 95% leverage. The vicious circle of speculative bets and forced position closures renders classic portfolio analysis meaningless, turning professional managers into involuntary participants in someone else’s gamble.

However, for investors with a long horizon and deep liquidity reserves, the current Wall Street imbalance represents a rare window of opportunity. While institutional funds record losses due to forced liquidations, large capital is buying fundamentally strong businesses at heavily discounted prices. Bill Ackman and his Pershing Square fund have turned market anomalies into a systematic source of profit, coolly entering capital-intensive corporations during panic sell-offs caused by speculative leverage.

In the Pershing Square portfolio, this strategy is visible in specific examples from recent years. The fund entered Microsoft shares during the massive IT-sector “SaaSpocalypse”, bought Amazon shares on the dip following the announcement of Donald Trump’s trade tariffs, and built a position in Alphabet amid the panic surrounding the launch of ChatGPT. Following a similar algorithm, Ackman increased his stakes in payment card systems Visa and Mastercard, calling them the most reliable businesses on the planet, as well as in the streaming platform Netflix. In conditions where 95% leverage forces players to dump quality stocks, long-term investors pick them up at “stupid prices”.

At this point, the effect of a “werewolf metric” is clearly visible. The official US GDP growth figure of 3.4% creates a picture of macroeconomic stability, yet this number merely masks the deep fragility of the financial system. Economic expansion statistics have become a facade: while consumer demand fuels GDP, the capital market has completely detached itself from physical reality and the actual earnings of companies. Behind the beautiful chart of national production lies a financial mechanism in which speculative derivatives have devoured the function of assessing investment risk.

Admittedly, the current volatility in the financial sector does not yet mean the American economy is sliding into a full-scale recession. High consumer demand, which has underpinned the rapid pace of national economic expansion, acts as a reliable shock absorber for the real economy. Corporations continue to generate revenue, and a strong domestic market gives fundamentally healthy enterprises the margin of safety needed to weather local storms on the stock exchanges.

However, this resilience of the real economy does nothing to fix the deep breakdown of the financial system itself. The mass exodus of market participants into short-term derivatives with extreme leverage continues to destroy the price-discovery mechanism. In conditions where 95% leverage triggers cascade liquidations of margin positions every few days, classic portfolio analysis loses all meaning. Institutional investors find themselves powerless against technical liquidity flows, and the valuation of public companies has finally detached from their business performance.

The US financial system has reached a limit beyond which speculative capital will begin to reshape the structure of the entire economy. When derivatives and sports bets replace long-term investment, the market ceases to perform its main function: the efficient allocation of resources between industries. The result is an environment where any macroeconomic success masks the growing fragility of stockmarket infrastructure.

Ultimately, Wall Street continues to spin a giant roulette wheel, where fundamental analysis has given way to aggressive gambling with extreme leverage. In this casino, the only capital that gains a systematic advantage is that which refuses to try to outplay speculative algorithms in the short term. The winner in such a game is the investor with the cool-headed patience to wait for the moment when market chaos once again puts a “stupid price” on a first-class business, rather than the one trying to guess the direction of the next impulse.