Hedge funds increased bets that equities would rally last week, according to two client notes from Goldman Sachs that were seen on Monday. The notes said the flow into long positions came amid hopes for a ceasefire in Iran and arrived days before global markets were whipsawed on Monday after the U.S. threat to impose a blockade nL6N40V09S on Iranian shipping.
As of Friday, the Goldman notes showed, the majority of hedge fund stock trades were long for the first time in eight weeks. Funds reduced short exposures and entered new long wagers across a range of strategies.
For clarity, a short position reflects an expectation that an asset's price will fall, while a long position anticipates a rise.
The Goldman client notes highlighted several specific patterns in the recent activity:
- Systematic hedge funds, including commodity trading advisors (CTAs), were expected to buy an estimated $40 billion of S&P 500 stocks this month.
- Managers who invest only on the long side re-entered markets after having remained on the sidelines since the war began.
- Although broader macro hedging stances shifted to net long, hedge funds remained short on individual equities.
- Hedge funds sold the largest volume of technology stocks in five years, with software stocks accounting for 60% of that selling.
- Stock purchases were global, led in dollar terms by Europe and emerging markets in Asia.
- Global stock-picking hedge funds delivered a 4% return for the week ending last Friday.
The notes portray a bifurcated positioning environment: large, systematic buyers supporting market-cap-weighted exposure even as active managers maintained selective short bets at the single-stock level. That divergence helps explain how aggregate flows can be pro-risk while individual security positions remain cautious or defensive.
Investors and market participants will likely monitor whether the estimated CTA buying materializes and how ongoing geopolitical developments influence short covering, sector rotation and regional demand for equities.