Hedge funds boost bearish bets on US equities amid market jitters

Hedge Funds Increase Bearish Bets on US Stocks, Goldman Sachs Reports

Hedge funds ramped up their bearish positions primarily on U.S. stocks last week as major stock indexes experienced a significant plunge, according to a report from Goldman Sachs. The report reveals that hedge fund clients were mainly adding short positions while also getting rid of long positions. Among the sectors, consumer discretionary, industrials, and financials were the most net sold.

Goldman Sachs’ prime brokerage team highlighted the fact that hedge funds have been increasing their short positions in U.S. stocks for five out of the past six weeks. Notably, the week in question saw the largest notional short selling since September 22nd. The bank specified that hedge funds primarily added short positions in macro products, including equity index and exchange-traded funds.

Furthermore, another report from Goldman Sachs showed that short flows in U.S. stocks have increased by over 20% since the beginning of the year. This data demonstrates a persistently bearish sentiment among hedge funds throughout 2023.

Goldman Sachs, being one of the leading providers of lending and trading services through its prime brokerage unit, is well-positioned to track investment trends among hedge funds. Their insights shed light on the decisions made by hedge fund managers during tumultuous times.

Last week, with Treasury yields hitting 16-year highs, all three major U.S. stock indexes posted weekly losses. Both the S&P 500 and the Nasdaq recorded their largest Friday-to-Friday percentage drops since March. In response to market conditions, hedge fund managers decided to unwind risk, primarily by selling long equity positions. According to Goldman Sachs, last week also witnessed the largest notional de-grossing activity in Japan since December 21st.

Amid the turbulence, the Bank of Japan maintained ultra-low interest rates on Friday and reaffirmed its commitment to support the economy until inflation sustainably reaches its 2% target.

Goldman Sachs’ reports provide valuable insights into the sentiments and actions of hedge funds, offering a glimpse into the broader market trends. As hedge funds continue to shape and navigate the financial landscape, their bets and positions can provide indicators of market direction and investor sentiment.

Carolina Mandl contributed to this report from New York, with editing by Richard Chang.

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