Hedge Funds Lead Charge in U.S. Stock Surge
In the past week, hedge funds exhibited vigorous activity in the purchase of U.S. stocks at a notably accelerated pace, as highlighted in a recent Goldman Sachs report (GS.N).
This surge in trading activity contributed to the ongoing stock rally, driven by optimism surrounding the potential permanence of the U.S. central bank’s decision to pause interest rates.
Notably, global funds aggressively acquired U.S. equities during the week leading up to November 3, marking the most extensive five-day buying spree since December 2021. This information was outlined in Goldman’s prime brokerage trading desk note dated last Friday.
According to the bank’s note on November 2, there were instances where individuals found themselves in a challenging situation as short positions became excessively costly to maintain due to the escalating stock prices.
Goldman Sachs (GS.N) mentioned in the same note that many investors encountered difficulties when attempting to abandon overcrowded trades that transformed into losing positions.
The major U.S. stock market indices experienced significant surges throughout the week, resulting in the most substantial one-week percentage gains of 2023 so far, with the S&P 500 rising for five consecutive days and the Nasdaq for six.
Goldman Sachs highlighted that hedge funds’ long positions in information technology stocks reached their highest point in the past eight months. Long positions anticipate an increase in stock prices, while short bets anticipate a decline.
The report noted a preference among speculators for technology stocks for long positions, particularly in software companies. Additionally, there was bullish sentiment toward consumer discretionary companies such as restaurants and fashion entities offering non-essential products and services.
Conversely, health care and financial stocks experienced net selling activity, as per the report.
The primary focus of hedge fund buying was centered on North America, whereas net short positions were observed in Europe and Asia, excluding Japan, as detailed by Goldman Sachs.
In October, there was a significant $3 billion offloading of China equities by fund managers, according to a Morgan Stanley report citing data from fund flow tracker EPFR.