Hedge funds go long, making large purchases of U.S. stocks at the fastest pace in seven weeks
Goldman Sachs data shows that hedge fund sentiment has changed dramatically. The week before last, they were shorting stocks at the fastest pace in four months, but last week they bought U.S. stocks at the fastest pace in seven weeks. The buying power of bulls is 2.4 times that of bears, and the overall leverage ratio has risen to 210.1%, which is at the 93rd percentile over the past three years, indicating a rebound in risk appetite. However, the net leverage ratio and long-short ratio remain at a medium-low level, indicating that there are still divergences between bulls and bears
Hedge funds turn bullish, buying U.S. stocks at the fastest pace in seven weeks.
Goldman Sachs' Prime Brokerage business showed last week that hedge funds were shorting U.S. stocks at the fastest pace in four months the week before. However, their attitude changed dramatically that week, turning to buy U.S. stocks at the fastest pace in seven weeks, with buying intensity reaching +0.4 of the one-year standard deviation, and the ratio of long buying volume to short selling volume reaching 2.4:1.
This shift marks a significant reversal in hedge fund sentiment. The overall leverage ratio of long-short strategies has risen for the first time in six weeks, with the "total leverage ratio" of equity long-short funds (reflecting overall leverage trading intensity) increasing by 2.4 percentage points to 210.1%, positioned at the 93rd percentile over the past three years (meaning leverage levels have been higher only 7% of the time), indicating a warming of overall market trading aggressiveness.
However, long-short discrepancies still exist. The net leverage ratio (net exposure after subtracting shorts from longs) only slightly increased by 0.3 percentage points to 52.7%, which is at the median level over three years. The long-short ratio (long size/short size) dropped to 1.67, which is at a low position in the 13th percentile over the past three years. This means that while funds are willing to leverage up to participate in the market, the longs have not formed an overwhelming advantage, and market discrepancies persist.
Market Style Shift: Popular Stocks Underperform, Unpopular Sectors Rise
The S&P 500 index rose 1% last week, reaching a new historical high, with four out of the past five weeks recording gains. From a valuation perspective, U.S. stocks are nearing the peak of the internet bubble, with price-to-book ratios even exceeding the peak levels of that time. Meanwhile, the summer trading lull has led to thin market transactions; although buying is small, stock prices are easily pushed higher due to even less selling.
In terms of style, the market is undergoing a significant transformation. Formerly popular stocks are facing sell-offs, while previously overlooked sectors are beginning to rebound. Goldman Sachs data shows that its U.S. "High Volatility Momentum Stock Portfolio" (GSPRHIMO Index) fell 7% in the past five days, marking the worst performance since March, indicating that funds are withdrawing from high-risk momentum stocks.
In stark contrast, the healthcare sector ended a long period of stagnation, rebounding 4% last week, achieving its best weekly performance since October 2022, serving as an important signal of style transformation. The most notable performers also include loss-making tech stocks, green energy stocks, "loser stocks" from the past 12 months, and the "most shorted" stocks, all of which saw gains of over 5%. In contrast, nuclear energy stocks and "winner stocks" from the past 12 months saw declines of 2% to 4%.
Fund Flows: Large-Cap Tools Favored, Defensive Sectors Abandoned
From the perspective of fund flows, the market shows characteristics of "large-cap tools favored, individual stock discrepancies, and defensive sectors abandoned."
Indices and ETFs have become safe havens for funds, with "macro products" represented by indices and ETFs recording the largest net inflow in seven weeks, with an intensity of +0.7 standard deviations, primarily driven by active long positions (the ratio of long buying to short covering is 1.6:1), indicating that large funds prefer to "bet on the market" to avoid individual stock volatility.
In terms of individual stocks, there has been a slight net sell-off for two consecutive weeks (intensity -0.2 standard deviations), with seven out of eleven sectors experiencing net selling, primarily in healthcare, consumer staples, utilities, and financials. Only consumer discretionary, communication services, industrials, and materials saw net buying It is worth noting that after six consecutive weeks of buying defensive stocks (healthcare, consumer staples, utilities), hedge funds made their largest withdrawal in four months this week, particularly from the consumer staples sector, where short selling was prominent, with tobacco and personal care products being heavily affected
