Hedge funds buy US stocks at fastest pace in 6 months, Goldman says

Hedge funds recorded their largest net buying of US stocks in six months last week, Goldman Sachs' prime brokerage data showed, as the S&P 500 extended its winning streak to nine consecutive weeks.

"The buying was broad-based, with both long additions and short covering contributing to the move," the Goldman Sachs prime brokerage team wrote in a client note dated Friday.

Net leverage on US equities climbed to 55.3%, placing it at the 89th percentile of the past year. The fundamental long/short ratio rose 1.4 percentage points to the 99th percentile, signaling that managers are carrying their most concentrated bullish positioning in 12 months. Short interest in US-listed ETFs contracted for a second straight week, declining 0.6%.

The positioning shift marks a sharp reversal from late May, when hedge funds trimmed semiconductor exposure and added macro short hedges after inflation data came in hot. With the Nasdaq 100 up more than 20% year to date and the S&P 500 notching its longest weekly winning run since 2023, the question is whether stretched positioning leaves the market vulnerable to a sharp unwind if the macro backdrop shifts.

Financials Lead, Industrials Lag in Rotation

Financial stocks captured the strongest net buying in six months, with Goldman's data showing a 6.5-to-1 ratio of long purchases to short sales. Payments companies led the inflows, followed by banks, while consumer finance and capital markets names saw some offsetting selling. Despite the surge, financials remain deeply underweight: total and net allocations both sit at the 1st percentile of their five-year ranges, according to the note.

Industrial stocks tell the opposite story. The sector has been net sold in seven of the past eight weeks, with short exposure climbing to the 90th percentile of the past year. Since February, the selling has been driven primarily by new short bets rather than long liquidation, Goldman said.

The divergence reflects competing narratives around the US economy. Financials are benefiting from expectations that higher-for-longer interest rates will support net interest margins and that a resilient consumer will sustain payments volumes. Industrials, by contrast, face headwinds from a slowing manufacturing cycle and uncertainty around capital goods demand.

At 55.3% net leverage, hedge fund exposure is now at levels that historically have preceded periods of elevated volatility. The 89th percentile reading means leverage has been higher only 11% of the time in the past year. If a catalyst — a hotter-than-expected CPI print, a hawkish Fed surprise, or a geopolitical shock — triggers a deleveraging event, the unwind could amplify any downside move.

The next major test comes with the June consumer price index release on July 11, followed by the Federal Reserve's July 30-31 meeting. For now, the market's momentum is being driven by optimism around artificial intelligence infrastructure spending and a better-than-expected earnings season, Goldman noted.

This article is for informational purposes only and does not constitute investment advice.