U.S. Equities Experienced Slight Net Sales by Hedge Funds Last Week, According to Goldman Sachs

U.S. equities experienced slight net selling overall last week, with the majority of the selling occurring last Friday during options expiry and index rebalancing, according to a recent report by Goldman Sachs. However, this trend was somewhat mitigated by more positive flows in subsequent sessions, particularly on Thursday.

Macro Products, which include indexes and exchange-traded funds (ETFs), saw the largest net buying in over three months, primarily driven by short covering, although long buying played a lesser role.

Short positions in U.S.-listed ETFs fell by 2%, mainly due to covering in Large Cap Equity and Tech ETFs. This decline was somewhat countered by increased shorting activity in Energy and Small Cap Equity ETFs.

In contrast, Single Stocks faced significant selling pressure, with short sales dominating long sales at a ratio of 4 to 1. Goldman Sachs reported that stocks were net sold in four out of the past five sessions, with Thursday being the only exception.

The sectors with the most net selling included Information Technology, Energy, and Financials, while Communication Services and Materials attracted the most buying interest.

Materials stocks, boosted by China’s new policy easing measures and promises of fiscal spending, experienced their strongest net buying since June 2022. The gains in this sector were particularly robust in Chemicals, Metals & Mining, and Containers & Packaging.

Energy stocks suffered due to declining crude oil prices, making it the worst-performing sector in the U.S. Hedge funds net sold Energy for the sixth consecutive week, doing so at the quickest pace since June 2022, with short sales outpacing long buys by a ratio of 6 to 1.

The S&P 500 reached new all-time highs last week, as investors reacted positively to the beginning of the Federal Reserve’s rate-cutting cycle, strong U.S. growth data, and continued signs of mild inflation. Notable gains were seen in China ADRs, equities sensitive to Bitcoin, and global copper stocks, while GLP-1 exposure, regional banks, and small-cap stocks underperformed.

Long-only investors concluded the week flat, while hedge funds were net sellers by $1.5 billion. Both groups demonstrated a rotation into cyclical stocks and China ADRs, utilizing large-cap tech stocks to fund these transactions.

According to Goldman Sachs, apart from demand in ADRs, sector skews remained relatively stable. The report highlighted a preference for index gains led by cyclical stocks over defensive ones.

Looking ahead, the prevailing consensus is that the S&P 500 might experience a sell-off before the U.S. elections but could rally to 6,000 by year’s end. However, Goldman Sachs suggested that the market “could rise higher sooner than many anticipate.”