While optimistic signals are being released by US economic data, hedge funds are voting with their feet.
Goldman Sachs Prime Book data shows that last week, there was a net sell-off in US consumer stocks, with long positions selling more than short covering. The nominal deleveraging of consumer stocks - the sum of long selling and short covering - hit the second highest level in the past year, ranking in the 96th percentile over the past five years. Hedge funds also hold a cautious attitude towards restaurant stocks.
Hedge funds' massive sell-off indicates their lingering doubts about the resilience of US consumption. However, recent economic data released in the past week shows no signs of a recession in consumption.
Earlier data revealed that US retail sales increased by 1% month-on-month in July, exceeding expectations and hitting the highest level since early 2023. The University of Michigan's Consumer Confidence Index for August rose for the first time in five months, with stable inflation expectations.
The latest financial reports from global retail giants also released positive signals. Walmart's second-quarter revenue and net profit both exceeded expectations, and the company raised its full-year performance guidance. The world's largest &#34;buy now, pay later&#34; service provider stated that US consumers show no signs of reducing spending.
Morgan Stanley analyst Sarah Wolfe wrote in a recent report:
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We have always maintained that due to tight monetary policy and a broader normalization of consumer behavior, consumer spending will decline in 2024. However, we believe that the fundamental drivers of consumption still support stable spending; it will neither re-accelerate nor decline. The July retail sales data confirms that purchasing power still exists.
</blockquote>
According to a previous article by Wall Street News, Goldman Sachs stated that the performance of consumer sector companies is consistent with macro data. In the S&amp;P 500 index, 60% of consumer companies exceeded expectations in the second quarter, indicating that US consumption still has some resilience. Goldman Sachs' developed consumer indicator - the US Consumer Dashboard - further shows that the current US consumption situation is very healthy.
Apollo Asset also believes that US consumption remains strong:
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...strong retail sales, declining unemployment claims, strong restaurant bookings, strong air travel, high hotel occupancy rates, accelerated bank credit growth, declining bankruptcy applications, steady credit card spending, strong Broadway audience numbers and box office revenue.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6555d524-b446-497a-ba42-858b1236d4d3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6555d524-b446-497a-ba42-858b1236d4d3.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/0c6d0f43-d221-457d-9bc1-35044f90a8e4.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/0c6d0f43-d221-457d-9bc1-35044f90a8e4.png"/>
The latest data on retail spending and unemployment benefits has eased some of the concerns about the US economy, although some sectors are still constrained by rising interest rates. In July, retail sales saw the largest increase since early 2023, with overall retail sales rising. Walmart's upward revision of its performance guidance also indicates that consumers, while becoming more cautious, are still spending.
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Hedge funds are voting with their feet, with net selling in US consumer stocks last week, and the nominal deleveraging scale hitting the second highest record in the past year

- Hedge funds are showing caution by selling off consumer stocks despite optimistic signals from US economic data. Last week, there was a net sell-off in US consumer stocks, with long positions exceeding short covering, marking the second-highest nominal deleveraging in the past year and ranking in the 96th percentile over the last five years. Hedge funds are also cautious towards restaurant stocks.
- The massive sell-off by hedge funds indicates lingering doubts about the resilience of US consumer spending. However, recent economic data reveals no signs of a consumer-led downturn. July's retail sales in the US surged by 1% above expectations, hitting the highest level since early 2023, while the University of Michigan's consumer sentiment index rose for the first time in five months, with stable inflation expectations.
- Major global retailers like Walmart reported better-than-expected second-quarter revenues and profits, raised full-year performance guidance, and noted no signs of reduced spending by US consumers. Analysts foresee stable consumer spending despite expectations of a slight decline in 2024 due to tighter monetary policies and normalized consumer behavior, supported by ongoing purchasing power as confirmed by July's retail sales data.

What did 'Smart Money' see again? Hedge funds are selling heavily, betting on a decline in US consumer spending