The popularity of weight loss pills surpasses that of AI! Consumer goods in the US stock market face a "record-breaking short-selling" situation.

Goldman Sachs' recent report reveals a new trend in "smart money" investing in US stocks: on one hand, there is a significant increase in short positions on essential consumer goods, and on the other hand, there is a strong bet on weight loss drugs, which have replaced artificial intelligence (AI) as the "new favorite".

According to Goldman Sachs' Prime Brokerage (PB) report, last week, essential consumer goods had the largest net short position in the US stock market, with the scale of short selling being four times that of long buying. Hedge funds sold off this sector at the fastest pace in 11 weeks, while underperforming the broader market in non-essential consumer goods.

The inflow of short-selling funds into the essential consumer goods sector has increased for six consecutive weeks, with the nominal value of short positions reaching the highest level in three months, surpassing 98% of the levels seen in the past five years.

In almost all sub-sectors of the essential consumer goods sector, there was a net outflow of funds last week, with home goods, beverages, and food leading the way. Although the overall risk exposure and net exposure have both decreased, there is still a long way to go before they turn into long positions unless market sentiment reverses.

There are many factors contributing to the significant increase in short positions on essential consumer goods, such as high interest rates, declining inflation and its impact on pricing power, as well as the popularity of glucagon-like peptide-1 (GLP-1) weight loss drugs.

Scott Feiler, a consumer stock trader at Goldman Sachs, predicts in the report that negative sentiment towards the essential consumer goods sector may continue this week. In addition to the scale of short-selling funds shown in the Goldman Sachs PB data, the report also mentions two points.

First, Procter & Gamble will release its third-quarter report on Wednesday. Goldman Sachs expects P&G's organic sales growth to be closer to 7% to 8%, surpassing the market consensus of 5.8%, and the gross margin to be higher than expected. However, due to the negative impact of foreign exchange, the EPS growth will be more moderate. P&G may not change the market sentiment of the essential consumer goods sector as a whole, but it may be one of the few stocks with positive EPS earnings during the earnings season.

Second, the emerging hot stock, GLP-1 weight loss drugs. The report predicts that it will continue to be the most discussed topic and will clearly have an impact on consumer stocks.

In addition, another report released by Goldman Sachs' analysts in the essential consumer goods industry, including Jason English, focuses on GLP-1 and provides some insights. They have noticed an increase in sales of products that treat the side effects of GLP-1, such as nausea.The report summarizes some key points, including:

Confidence in L'Oreal, which has been given a buy rating, as it is seen as a positive for the beauty and cosmetics industry;

Expectation of resilience in the performance of functional beverages;

The impact on retail is not as significant as feared. In 2019, the performance of the chocolate category among the analyzed group is similar to that of the wider population, while the performance of the gum and candy category is actually better;

In terms of milkshakes and energy bars, it is a major positive for Bellring Brands' (BRBR) healthy milkshakes, while the impact on Simply Good Foods' (SMPL) products is more complex. Weight control energy bars are the worst performing, while nutrition bars have seen positive developments.

Traditional breakfast stocks are under pressure, such as coffee and cereal products, including WK Kellogg (KLG) and J M Smucker (SJM), which have been given sell ratings by Goldman Sachs.

In the soda water sector, the impact is relatively small, possibly due to the prevalence of low-calorie and sugar-free products, according to Goldman Sachs' analysis.

Finally, Goldman Sachs' trading department discussed the "revolution" in the healthcare sector: The gap between winners and losers in the weight loss drug frenzy has exceeded the gap between winners and losers in the AI frenzy in the first half of this year.

Goldman Sachs analyst Asad Haider shared his views on the widening gap in Goldman Sachs' GLP-1 pairing basket in the report. Investors are considering the potentially disruptive impact of GLP-1 use on a broader range of medical technologies and hospital surgical volumes. The following chart shows the names of the phase 2 and phase 3 GLP-1 trials, related companies, focus areas, and the stocks affected, which are expected to release results in the coming months until mid-next year.

The chart below shows that the market's excitement about weight loss drugs/GLP-1 (measured by the ratio of winners to losers in the GLP-1 field) has now surpassed the AI frenzy that dominated the first half of 2023.