According to Zhītōng Finance APP, J.P. Morgan and Goldman Sachs have informed their clients in a report that global hedge funds have been unwinding their bets on a decline in U.S. listed stocks, as the continued rise in stock prices threatens their performance. J.P. Morgan stated that short positions have been a challenge for hedge funds, especially since early June, and described the recent closing of short positions as &#34;extreme.&#34; Goldman Sachs, in a report last Friday, stated that short covering of U.S. macro products (including stock indices and exchange-traded funds) reached its highest level since November 2020.
The bull market in the United States has caught portfolio managers off guard. Earlier this year, they prepared for an economic downturn amid rising interest rates, persistent high inflation, and geopolitical tensions. Such short covering could in turn drive stock prices higher, further complicating the situation for remaining short sellers.
However, the performance of major U.S. stock indices has challenged their bearish views. J.P. Morgan pointed out that the Nasdaq Composite Index has surged more than 42% this year, while the S&amp;P 500 Index has risen more than 17%, and a basket of heavily shorted U.S. stocks has risen 40% since early May. Hedge funds have not performed well overall. In the first half of this year, hedge funds rose by only 3.45%, lagging behind major stock indices.
In a report on July 13th, J.P. Morgan added that investor sentiment has become more positive amid the continued rise in stock prices. Goldman Sachs' data also shows that net inflows, excluding shorted stocks, have reached their highest level since October of last year. However, this is mainly driven by investors buying stocks to cover their short positions. Nevertheless, according to Goldman Sachs, hedge funds have also increased their short positions in more individual stocks, mainly in the staple, communication services, and information technology sectors.
Goldman Sachs and J.P. Morgan operate the world's two largest institutional brokerage firms, providing lending and trading services to investors, and are able to understand the trends of large hedge funds and asset management companies.

Global hedge funds are increasingly unwinding their bets on a decline in US-listed stocks.

Morgan Stanley, Goldman Sachs: US stocks surge, "forcing out" short sellers, hedge funds are unwinding their bearish positions.