Hedge funds are offloading stocks at the quickest rate in three months

Are Hedge Funds Dumping Stocks?

Hedge funds are making headlines for all the wrong reasons lately as they continue to dump stocks at a rapid pace. Known as “the smart money,” these professionals have been increasing their bearish wagers against equities during the recent market pullback.

In a recent report from Goldman Sachs’ prime brokerage data, it was revealed that hedge funds sold global stocks on a net basis for the second consecutive week, mainly through short sales. This marked the biggest selling week for hedge funds since mid-January. Bank of America’s client data also showed a similar trend, with hedge fund clients selling stocks for the fifth consecutive week across companies of all sizes.

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The market is currently experiencing a retreat as investors reevaluate the Federal Reserve’s plans for interest rate cuts. Last week, the Dow Jones Industrial Average saw its worst weekly performance since March 2023, falling 2.3%. The S&P 500 also declined nearly 1%, its largest weekly loss since early January. Despite this, the equity benchmark is still only 1.7% below its 52-week high.

According to David Bahnsen, chief investment officer at Bahnsen Group, “valuations are so stretched right now that anything less than perfection from economic data or any geopolitical noise can create substantial and quick selloffs.”

Consumer discretionary stocks were among the worst-performing and most sold U.S. sectors last week, with hedge fund managers reducing long positions in the sector daily and shorting retail-focused exchange-traded funds. The SPDR S&P Retail ETF (XRT) dropped 5.5% during the week.

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One of the primary drivers of this recent pullback has been a shift in interest rate expectations. The market has revised its outlook for rate cuts, with traders now seeing a coin flip between two and three reductions this year, compared to the initial prediction of as many as seven cuts for 2024.

As uncertainty looms over when the Fed will start cutting rates, it’s essential for investors to stay informed about market trends and make informed decisions. Stay tuned to Extreme Investor Network for more updates on the latest financial news and expert insights.

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