Hedge funds are dumping stocks at the fastest pace in three months as what is often called “smart money” increased bearish bets against stocks amid a recent pullback. Professionals sold global stocks on a net basis for the second week in a row, driven almost entirely by short selling, according to prime brokerage Goldman Sachs. It was the biggest selling week for hedge funds since mid-January, the data showed. Bank of America customer data showed a similar trend. Last week, hedge fund clients sold stocks for the fifth week in a row, selling small-, mid- and large-cap stocks. The market is in retreat as investors reassess the Federal Reserve’s path to lowering interest rates. The 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 index was still only 1.7% lower. that’s a 52-week high. .SPX YTD Mountain S&P 500 “Valuations are now so stretched that anything less than perfection based on economic data or any geopolitical noise could lead to a significant and rapid sell-off.” said David Bahnsen, chief investment officer of the Bahnsen Group. Consumer discretionary stocks were among the worst-performing and best-selling U.S. sectors on a net basis last week, according to Goldman. The Wall Street investment bank noted that hedge fund managers trimmed long positions in the sector every day and trimmed retail-focused exchange-traded funds. The SPDR S&P Retail ETF (XRT) fell 5.5% for the week. One of the main factors behind the recent pullback has been changing interest rate expectations. The market again rejected its forecasts for rate cuts this year, seeing the coin fluctuate between two and three cuts, according to CME group’s FedWatch indicator of trading in the fed funds futures market. Traders started the year estimating as many as seven rate cuts for 2024. “We think June is no longer a given for the Fed to start cutting rates, but expect rate cuts to occur as inflation falls,” Jean Boivin, head of the BlackRock Investment Institute, said in a note Monday. — CNBC’s Michael Bloom contributed reporting.
