Hedge Funds Are Leveraging the Fed’s Major Rate Increase to Invest in US Tech Stocks, According to Goldman Sachs

Hedge funds significantly increased their purchases of U.S. technology and media stocks last week, marking the fastest pace of buying in four months, according to a report from a prime brokerage affiliated with Goldman Sachs. This uptick was primarily driven by expectations of a 50-basis-point interest rate cut by the Federal Reserve.

Anticipated lower interest rates are expected to encourage industrial investment by reducing borrowing costs for companies, which in turn could enhance consumer spending on tech products and elevate stock prices within the sector. The Fed’s recent rate cut, its first in four years, has also contributed to a rise in U.S. stock markets, with the S&P 500 closing 1.15% higher on Friday. This increase comes as recession fears ease and investors consider the advantages of a more accommodating monetary policy.

Hedge funds have tripled their long positions in information technology stocks compared to their short positions, indicating a strong belief that these stocks will appreciate in value. There has been particularly robust buying activity in semiconductor and related equipment companies, which have seen stronger purchases compared to hardware firms, such as those manufacturing computers and storage devices.

Additionally, hedge funds have reduced their short positions and increased their long bets in the interactive media and entertainment sector, indicating an optimistic outlook for this area. Currently, technology and media represent nearly one-third of U.S. hedge fund net portfolio exposure, while consumer goods have seen the most significant selling activity.

In particular, there was a noteworthy shift, as selling in consumer discretionary stocks—such as those in the hospitality and restaurant sectors—outpaced buying for the first time in four weeks, culminating in the largest net selling reported in this sector over the past year. Meanwhile, gross leverage, encompassing total hedge fund borrowing and investments, has reached approximately 278%, among the highest levels recorded this year.