After two consecutive weeks of buying, U.S. stock markets have reached record highs, prompting hedge funds to start selling. According to the latest report from Goldman Sachs, hedge funds have offloaded 25% of the long positions they recently acquired. The volume of short-sale transactions was more than double that of purchases.
Macro products, such as index funds and ETFs, accounted for almost all of the net selling of U.S. stocks. In three of the past four weeks, these products saw net selling, with short-sale transactions three times the number of purchases. The nominal volume of short sales in macro products last week was the highest since early January, ranking in the 97th percentile of the past five years. This increase reflects heightened hedging activities by hedge funds.
Conversely, individual stocks in the U.S. showed net buying for the fourth consecutive week, with purchases outpacing short sales by a factor of 1.6. The sectors with the highest net purchases were healthcare, utilities, and industrials, while consumer discretionary, financials, and real estate saw the most net selling.
Last week, American hedge funds bought U.S. stocks at the fastest rate in four months, driven primarily by long purchases and some short-covering, marking the largest net purchase volume since December 2023. Technology stocks were especially favored, with hedge funds net buying for the third consecutive week at the fastest rate in five months.
Hedge funds continued to increase their net exposure to healthcare, maintaining an overweight position. Last week, hedge funds registered significant buying in healthcare stocks, driven by long purchases and short-covering, resulting in the sector experiencing net buying for the fifth week running. The net exposure to healthcare is now up by 8.8 percentage points, nearing the highest overweight level relative to the S&P 500 in the past five years.
In contrast, hedge funds have underweighted real estate stocks, with net selling observed in the past four weeks and short-sale transactions outnumbering purchases by six times. Real estate investment trusts (REITs) and residential REITs experienced the most net selling last week, while the sectors of real estate management, development, and industrial REITs witnessed modest net buying. The underweight position in REITs decreased by 1.6 percentage points, reaching the lowest level relative to the S&P 500 since January, and is in the 20th percentile of the past five years.
Alongside hedge funds, Goldman Sachs’ equities sales trading noted that “pure long” investors showed a slight net buying trend last week, with significant purchases in energy, technology, and industrial sectors, although communication services saw net selling. However, trading volumes were relatively small overall.
Goldman Sachs highlighted that historically, trading volumes decrease before the U.S. presidential election day, except in 2008. Once the elected president is confirmed, volumes typically surge, accounting for about 30% of the overall trading volume.
Moreover, data from Goldman Sachs Private Bank indicated that large-cap tech stocks have seen overall net buying since October, mainly due to short-covering, with contributions from long purchases being relatively minor. Nonetheless, from a positioning standpoint, the net allocation and long-short ratio for this group remain well below levels seen entering the first and second quarter earnings reports, which bodes well for the third-quarter earnings season.