Hedge Fund "Short to Long": U.S. stocks net buying in two days hits a six-month high, tech stock shorts are aggressively covered

The trend of deleveraging in the US stock market has seen a significant turnaround: hedge funds have notably net bought US stocks in the past two trading days, with the cumulative buying scale reaching a six-month high.

According to data from Goldman Sachs' prime brokerage business, hedge funds net bought US stocks by 2.2 and 1.6 standard deviations on Friday and Monday, respectively, with the cumulative net buying scale in USD being the largest for any two days in over six months, and one of the highest in the past two years. In the previous three weeks, hedge funds had continuously net bought US stocks, but the buying intensity was far less than the two days at the end of last week.

The market shift stems from a sharp change in expectations regarding Federal Reserve policy. The market's current expectation probability for a 25 basis point rate cut in December has surged from 30% a week ago to 85%. Goldman Sachs' economic research team now fully anticipates a 25 basis point rate cut in December and maintains its forecast for two more rate cuts in 2026, at which point the federal funds rate will drop to 3.125%.

In this wave of buying, individual stocks and macro products accounted for 56% and 44% of the net nominal buying volume in US stocks, respectively. Short positions in US-listed ETFs were covered by 2.5% and 2.4% on Friday and Monday, essentially reversing the ETF shorting activity during the sharp market reversal last Thursday.

Tech Stocks Shift from Heavy Selling to Major Buying Target

The information technology sector has become the largest net buying sector in US stocks over the past two trading days.

Last Thursday, hedge funds were aggressively selling US tech stocks, but on Friday and Monday, they immediately turned into buyers. The buying activity was primarily driven by long positions, with short covering as a supplement, at a ratio of about 4:1.

Sub-sectors such as semiconductors and semiconductor equipment, technology hardware, and communication equipment led the gains, with most sub-sectors recording net buying.

Goldman Sachs' basket of US AI beneficiary stocks saw a massive net buying inflow on Friday and Monday, mainly driven by mega-cap tech stocks. In contrast, the net activity of non-profitable tech stocks was relatively low—it's worth noting that the total short flow of non-profitable tech stocks has increased for five consecutive trading days, with growth observed on 14 out of the past 15 trading days.

Quality and defensive characteristics continue to be the focus of hedge funds. The buying momentum in the healthcare sector has persisted, with hedge funds net buying this sector for five consecutive trading days, and net buying observed on 15 out of the past 17 trading days. The total allocation and net allocation of this sector currently account for nearly a five-year high, sitting at the 98th percentile of the total amount in US prime brokerage books Risk Warning and Disclaimer

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