Hedge funds are dumping stocks at the fastest pace in three months, as what is often called “smart money” stepped up their bearish bets against stocks amid the recent decline. Professionals sold global stocks on a net basis for the second straight week last week, driven almost entirely by short sales, according to Goldman Sachs prime brokerage data. The data showed that this represented the biggest week of selling for hedge funds since mid-January. Separately, Bank of America customer data showed a similar trend. Its hedge fund clients sold stocks for the fifth straight week last week, exiting stocks across small, mid-cap and large caps. The market is in the middle of a decline as investors reevaluate the Federal Reserve's path to cutting 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, though the stock index is still 1.7% lower. Just. Highest level in 52 weeks. .SPX YTD Mountain S&P 500 “Valuations are so stretched right now that anything less than perfect in economic data or any geopolitical noise could trigger a massive, rapid sell-off.” Goldman Sachs said consumer discretionary stocks were among the worst-performing and most-sold sectors in the U.S. on a net basis last week, said David Bahnsen, chief investment officer at Bahnsen Group. The Wall Street investment bank noted that hedge fund managers were reducing long positions in the sector each day and selling retail-focused exchange-traded funds. The SPDR S&P Retail ETF (XRT) is down 5.5% on the week. One of the biggest drivers of the recent decline has been the shift in interest rate expectations. The market has once again trimmed its expectations for a rate cut this year, seeing the currency fluctuate between two and three cuts, according to CME Group's FedWatch gauge for trading in the federal funds futures market. Traders began the year pricing in as many as seven rate cuts for 2024. “We believe June is no longer a foregone conclusion for the Fed to start cutting interest rates – but we expect rate cuts with… Low inflation. BlackRock Investment Institute said in a note on Monday. — CNBC's Michael Bloom contributed reporting.
