In terms of capital flow, financial stocks received significant net purchases, while short positions in industrial stocks have risen to high levels.

Written by: Li Jia

Source: Wall Street Journal

The strong performance of U.S. stocks continues, and hedge funds are accelerating their entry with the most aggressive stance of the year.

According to Bloomberg, Goldman Sachs' prime brokerage division noted in its latest client report that last week saw hedge funds' net purchases of U.S. stocks reach a six-month high, driven mainly by a combination of long positions and short covering, involving index products and ETFs. Meanwhile, short positions in U.S.-listed ETFs have decreased for the second consecutive week, with a week-on-week decline of 0.6%.

Data from the latest week shows a significant rebound in market risk appetite: the net leverage ratio of long and short positions in U.S. stocks has risen to 55.3%, in the 89th percentile over the past year; the fundamental long-to-short ratio for U.S. stocks has also increased by 1.4 percentage points compared to the previous week, currently situated in the 99th percentile.

This position structure stands in stark contrast to the defensive stance observed in late May. At that time, Goldman Sachs' prime brokerage division observed that hedge funds had taken profits in the semiconductor sector and increased their macro-level short positions against the backdrop of rising bond yields and inflation data exceeding expectations.

In terms of market performance, the S&P 500 index has posted gains for nine consecutive weeks, setting the record for the longest weekly winning streak since 2023; the Nasdaq 100 index, dominated by technology stocks, has seen a cumulative increase of over 20% this year. Continued warming of market sentiment indicates that investors' optimistic expectations for infrastructure spending on artificial intelligence, combined with overall better-than-expected earnings season performance, are together supporting the current upward trend.

Strong Buy in Financial Stocks, Short Positions Accumulate in Industrial Stocks

In this round of buying, financial stocks benefited the most, with net purchases reaching a nearly six-month high. Goldman Sachs data shows that the ratio of long to short purchases is about 6.5 to 1, with buying led by payment-related stocks, followed by bank stocks, while selling in the consumer finance and capital markets sectors provided a degree of hedging.

Despite continuous inflows of capital, the Goldman Sachs team pointed out that the allocation level for financial stocks remains deeply undervalued. "The total allocation and net allocation of financial stocks in the U.S. main balance sheet are basically at the 1st percentile of their respective five-year lows," Goldman wrote in the report.

In stark contrast to financial stocks is the industrial sector, which has faced net selling in seven out of the past eight weeks. Goldman Sachs data shows that short positions in industrial stocks have risen to the 90th percentile for the year, and since February, the selling has been primarily driven by short sales rather than long position liquidations.