Hedge funds bet against U.S. stocks and turn to Europe, Goldman Sachs says

• Global stock selling reached new highs last week, with index-tracking products and single stocks both net sold, led by consumer discretionary, tech, and financial sectors
• Hedge funds abandoned long positions and added shorts in emerging markets Asia while maintaining long bets only in consumer staples and energy stocks
• Stock pickers lost 3.85% in March but remain up 0.16% year-to-date, while systematic traders gained over 6% for the year on short bets

Summary: Hedge Funds Short U.S. Stocks, Pivot to Europe

Key Developments

Hedge funds significantly increased short positions against U.S. stocks last week while rotating into European equities, according to a Goldman Sachs client note dated Friday, March 20, 2025. This marks the fifth consecutive week of equity shorting by speculators.

Market Activity

• Record selling: Global stock selling reached its highest level since April 2025, representing the largest net selling in nearly a year
• Short targeting: Both index-tracking products (ETFs) and individual stocks experienced net selling
• Sector breakdown: Consumer discretionary, technology, and financials led the selling pressure
• Defensive positioning: Only consumer staples and energy sectors saw net long positions from hedge funds

Geographic Shifts

Hedge funds abandoned long positions in emerging markets Asia while adding shorts to the region. The rotation toward European markets represents a significant strategic shift away from U.S. equities.

Performance Metrics

• Hedge fund stock pickers gained 0.47% for the week of March 13-19, profiting from existing long positions
• Month-to-date (March): Stock pickers down 3.85%
• Year-to-date: Stock pickers up 0.16%
• Systematic traders: Up over 6% for the year, benefiting from short positions
• Gross leverage declined to 309.8% for the week

Market Drivers

The bearish positioning follows concerns about Middle East tensions supporting elevated oil prices and potentially triggering inflation. Rising bond yields last week reflected these concerns, pressuring equity valuations and driving the defensive repositioning.