After five consecutive weeks of selling, hedge funds are aggressively bottom-fishing in U.S. stocks, with net purchases in information technology reaching a four-year high

After experiencing five consecutive weeks of selling, hedge funds suddenly turned around last week, sparking a massive buying spree in U.S. stocks, with a significant focus on technology stocks, while retail investors jumped ahead to "beat" the institutions.

Goldman Sachs stated in its latest report that hedge funds were buying U.S. stocks every day last week, achieving the fastest pace since early November last year, with net buying volume for individual stocks reaching the highest level in over three years.

The report showed that out of 11 sectors, 8 sectors achieved net buying, with the net buying volume in the information technology sector being the largest since December 2021, the second highest level in the past five years, primarily driven by short covering and long positioning (at a ratio of 1.5 to 1), and net buying was achieved every day of the week.

Despite several tech companies under the "seven giants" reporting earnings below expectations last week, the information technology sector was still the most net bought sector of the week, with all sub-sectors, including software, semiconductors, and semiconductor equipment, showing net buying, led by IT services.

Currently, information technology has become the second largest net bought U.S. sector in Goldman Sachs Prime accounts this year, second only to healthcare. The components of Goldman Sachs' U.S. TMT (Technology, Media, and Telecommunications) AI basket (GSTMTAIP) have shown net buying for eight consecutive trading days, indicating that hedge funds have become more aggressive towards AI themes and have begun to increase their allocation to related stocks after the major sell-off triggered by the DeekSeek boom on January 27.

Meanwhile, the consumer discretionary sector has been net sold for the seventh consecutive week, making it the most net sold U.S. sector this year. The sub-sectors with the highest net selling include hotels, restaurants and leisure, broad retail, diversified consumer services, and household durables.

Goldman Sachs data shows that the total leverage ratio of U.S. fundamentals has decreased by 1.5 percentage points from its historical high to 205.9%, while the net leverage ratio has only slightly decreased by 0.1 percentage points to 56.5%, and the long-short ratio has increased by 0.3% to 1.756.

Goldman Sachs trader Matt Kaplan stated:

"From the flow data, last week's preferences were relatively mild. Long-term investors net bought $2.5 billion, while hedge funds remained balanced. Technology, industrials, and healthcare were the biggest buying preferences, while communication services and macro products were sold."

Additionally, it is worth noting that before the large-scale buying by hedge funds, retail investors had already jumped ahead to start bottom-fishing, with buying enthusiasm even surpassing the peak levels during the 2021 "meme stock" frenzy