Hedge funds have ramped up bearish bets on U.S. stocks, adding more short positions in March than at any time since 2020, according to a Goldman Sachs note.
The S&P 500 has dropped nearly 5% this month, while global stocks (excluding the U.S.) have gained 8%, marking their strongest first-quarter performance since 2019. The Federal Reserve recently cut its U.S. growth forecast and raised inflation projections amid trade policy uncertainty.
Rather than exiting the market, hedge funds have doubled down on bets against stocks, Goldman noted. After the first week in March, hedge funds ditched their stock holdings over 48 hours at the fastest rate in four years, as the S&P fell 3.1% in a week. Unlike in Europe and Asia, where funds have exited bad trades, bearish sentiment in the U.S. remains strong.
Exposure to tech and media stocks is at a five-year low, with some funds shorting the sector, including AI-related shares. Tech-focused funds have lost 4.1% this month, while healthcare-focused ones are down 1.5%.
Globally, despite these trends, stock pickers have gained 1.5% in 2024, rebounding from their worst two-week stretch since May 2022. Meanwhile, systemic hedge funds, which thrive in declining markets, have posted an 8.9% return this year.