Two weeks of frenzy buying, hedge funds have started shorting US stocks again

After buying US stocks for two consecutive weeks, the US stock market reached a historical high, and smart money began to sell again.

According to the latest weekly report from Goldman Sachs, in the past week, hedge funds sold US stocks, unwinding 25% of their recently established long positions, with short sales amounting to more than twice the purchases.

Macro products (combinations of indices and ETFs) accounted for almost all of the net sales in the US, with three out of the past four weeks seeing net sales, and short sales amounting to more than three times the purchases.

Last week, the nominal short volume of macro products reached its highest level since early January, hitting the 97th percentile in five years. Goldman Sachs trader John Flood pointed out that this indicates increased hedging activity by hedge funds.

However, individual US stocks saw net buying for the fourth consecutive week, with buying trades being 1.6 times the short sales.

Among them, the industries with the most net buying in the US were healthcare, utilities, and industrial sectors, while the industries with the most net selling were non-essential consumer goods, financials, and real estate.

Prior to last week, US hedge funds made significant purchases of US stocks at the fastest pace in four months, resulting in the largest net buying volume since December 23rd, 1993, mainly driven by long purchases and minor short covering. Information technology stocks were favored in the purchases, with hedge funds seeing a net buying for the third consecutive week and at the fastest pace in five months.

US hedge funds continue to increase their net exposure to healthcare and remain overweight

Last week, US hedge funds bottomed out on healthcare stocks (up 2.1 standard deviations), mainly due to long purchases and short covering. Healthcare has been the industry with the most net buying in the US since October, with five consecutive weeks of net buying.

Most sub-industries under the healthcare sector saw net buying last week, including pharmaceuticals, healthcare providers and services, as well as medical equipment and supplies.

Currently, hedge funds' overweight position in the healthcare sector has increased by 8.8 percentage points, nearing the highest overweight level in the past five years relative to the S&P 500 index.

The overall long/short ratio for US healthcare now stands at 2.45, the highest level since January, ranking at the 46th percentile over the past five years.

US hedge funds underweight in real estate stocks

Over the past four weeks, hedge fund managers have seen net selling in real estate stocks, with short sales being six times the purchases.

Among them, specialized real estate investment trusts (REITs) and residential REITs were the most net sold sub-industries last week, while real estate management and development and industrial REITs saw moderate net buying.

Currently, hedge funds' underweight position in the REIT sector has decreased by 1.6 percentage points, the lowest level since January relative to the S&P 500 index, ranking at the 20th percentile over the past five years.

Last week, "pure long" showed a slight net buying

In addition to hedge funds, Goldman Sachs' equity sales trading department noted that last week, "pure long" ultimately saw a slight net buying, with the largest buying in the energy, technology, and industrial sectors, while communication services saw net sellingHowever, Goldman Sachs pointed out that the overall trading volume was relatively small last week.

Looking back at past US presidential elections, except for 2008, trading volume tends to decrease before election day. Once the elected president is confirmed, trading volume will sharply increase, usually maintaining around 30% of the overall trading volume.

It is worth noting that data from Goldman Sachs Private Bank shows that mega-cap tech stocks have seen overall net buying since October, mainly due to short covering, with relatively small contributions from long positions. However, from a holdings perspective, the net allocation and long/short ratio of this group are much lower than the levels seen at the beginning of the first and second quarter earnings reports, which bodes well for the third-quarter earnings