Hedge funds are selling off stocks at the fastest pace in three months as what is often called “smart money” ramps up bearish bets on stocks during the latest pullback. Prime brokerage data from Goldman Sachs showed professionals were net sellers of global stocks last week for a second straight week, driven almost entirely by short selling. Data showed it was the biggest selling week for hedge funds since mid-January. Separately, Bank of America’s customer data shows a similar trend. Its hedge fund clients sold stocks last week for a fifth straight week, exiting shares of small, mid-cap and large-cap companies. The market is in the midst of a correction as investors reassess the Federal Reserve’s path to cutting interest rates. The blue-chip Dow Jones Industrial Average fell 2.3% last week, its worst weekly performance since March 2023. The S&P 500 fell nearly 1%, its biggest weekly loss since early January, although the stock market benchmark was still just 1.7% lower at a record high. .SPX YTD mountain S&P 500 “Valuations are already so high right now that any imperfections in economic data or any geopolitical noise could lead to a massive and fast sell-off,” said David Bahnsen, chief investment officer at Bahnsen Group. Goldman Sachs said consumer discretionary stocks were among the worst-performing and top-selling U.S. sectors last week on a net basis. The Wall Street investment bank noted that hedge fund managers are reducing long positions in the sector every day and shorting retail-focused exchange-traded funds. The SPDR S&P Retail ETF (XRT) fell 5.5% this week. One of the biggest drivers of the recent pullback has been the shift in interest rate expectations. The market has again lowered its rate cut expectations for this year, swinging back and forth between two and three cuts, according to CME Group’s FedWatch indicator of trading in the federal funds futures market. Traders began the year expecting as many as seven interest rate cuts in 2024. Jean Boivin, head of BlackRock Investment Institute, said: “We believe June is no longer a must for the Fed to start cutting interest rates, but as inflation declines, a rate cut will Coming.” , said in a report on Monday. —CNBC’s Michael Bloom contributed reporting.
