US Fundamental Long/Short (L/S) net leverage dropped by 2.5 points last week to 50.7%.
That’s the largest weekly decline since Liberation Day and puts leverage at the 28th percentile of the past 3 years, per Goldman Sachs.What does “net leverage” mean? It’s basically how much hedge funds are betting with borrowed money. A higher number means funds are taking on more risk, while a lower number means they’re playing safer.This sudden drop shows funds are cutting exposure fast. On the bright side, that reduces systemic risk, lowers the odds of forced liquidations, and leaves dry powder to buy later if markets stabilize.But there’s a flip side. Lower leverage also means funds are pulling back from the market, which can reduce liquidity and signal fading conviction. If stocks rebound sharply, funds risk missing the upside.Funds are clearly moving into defense mode. I think they’re bracing themselves for October, historically one of the choppiest months for markets. But if history is any guide, this reset in positioning could set the stage for a rally into Q4, when seasonality turns far more supportive.Source: StockMarket.News
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