Elliott Warns of a Coming Bear Market, With Returns Below 2% in 2026
Key Facts
Elliott Investment Management warned that a major bear market may be approaching in a letter to investors whose contents Reuters reported on November 2, while the firm posted a flat return in the third quarter and less than 2% in the first nine months of 2026. The letter said that “almost every warning sign that cautions of a major bear market ahead is flashing,” reflecting Elliott’s concern about the risks accumulating in markets. The warning puts the firm’s modest performance this year at the center of the story, as it coincided with a return of no more than 2% from January to September. Reuters cited the figures from a letter to investors reviewed by The Wall Street Journal. In subsequent coverage dated November 3, Benzinga reported that the letter addressed a range of economic and financial risks, and was not a new announcement of a stake in Synopsys.
In its letter, Elliott identified several signals it viewed as portending a broader market decline, according to Reuters, including options that expire on the day they are traded, meme stocks and reduced investment expectations tied to artificial intelligence. These factors covered different aspects of the landscape, from trading activity in short-term instruments to stocks attracting speculative interest and changing expectations for AI spending. Benzinga added that the letter also pointed to a widening U.S. budget deficit, persistent inflation, private credit portfolios and what it described as AI hype. The warning thus brings together macro-financial concerns and risks tied to asset valuations, spending and investment. Neither report gave a numerical estimate for the potential scale of the decline or a timeframe for a bear market.
Concerns about artificial intelligence carry particular weight given the differing effects of investment in it across companies and sectors. In August, Synopsys’ chief executive said AI was increasing the complexity of chip design and driving demand for the company’s chip intellectual property solutions and engineering services. This came as the company reported results for the third quarter of its 2026 fiscal year, when revenue reached $2.477 billion, compared with $1.740 billion in the corresponding period of the previous fiscal year. Synopsys then raised its 2026 fiscal-year revenue forecast to a range of $9.690 billion to $9.740 billion. Its chief executive said that “AI is driving unprecedented complexity and increasing demand for chip IP solutions and engineering services,” linking demand for the company’s tools to the growing complexity of chip design.
Elliott’s relationship with Synopsys began with a major investment announced in March, when Reuters reported that the fund had built a multibillion-dollar investment in the electronic design software company and saw room to increase sales and improve margins. The report said Elliott’s rationale included improving revenue realization from software and services, while Synopsys said it regularly engages with shareholders and values their views. On May 27, the company announced the appointment of Jesse Cohn, Elliott’s managing partner, as an independent member of its board, effective June 1. The appointment brought the board to 11 members, under a cooperation agreement between the company and Elliott. Synopsys said it “regularly engages with our shareholders on a range of matters and values their views,” referring to the course of the relationship between the two sides following the investment.
The cooperation agreement, according to the disclosure filed with the U.S. Securities and Exchange Commission, stipulated that the continuation of the alternate seat associated with Cohn was conditional on Elliott maintaining a net long position of at least 1.5% of the outstanding common shares, or an equivalent net long economic exposure. The condition sets the ownership level or economic exposure required to retain the seat under the agreement announced in May. When news of Elliott’s investment broke in March, Synopsys shares rose 2.5% in premarket trading on March 23, according to Investing.com. That move remains tied to the March news, while the warning reported in November focuses on market risks and Elliott’s return during 2026. The risks cited by the firm include the budget deficit, inflation, private credit and investment expectations for artificial intelligence, alongside short-term options and meme stocks.