Global hedge funds are showing renewed interest in U.S. equities after a significant selloff in major Wall Street indexes. This shift signals a burgeoning optimism about the U.S. economy.
According to Goldman Sachs, hedge funds began to rebuild their exposure to U.S. stocks after previously unwinding positions on March 7 and 10. Throughout the week, they added both long and short bets, suggesting a more pessimistic overall stance in their global portfolios, as the ratio of short positions to long bets increased.
In contrast, portfolio managers continue to reduce risk in Europe and Asia. Goldman Sachs noted a rapid sale of European stocks, reaching its highest pace in over five years, alongside similar trends in emerging markets across Asia.
The two days of selling that occurred on Friday and Monday marked the largest two-day deleveraging seen in four years, comparable to events during the early days of the COVID pandemic. Despite a challenging week, with all major U.S. indexes posting losses due to worries surrounding economic forecasts and President Trump’s tariff policies, there was a rebound on Friday.
The S&P 500 rose by 2.18%, the Dow Jones increased by 1.74%, and the Nasdaq gained 2.68%. This comeback was driven by some investors looking for bargains while also maintaining bets on further declines.
Trend-following hedge funds, or CTAs, are currently net short on U.S. equities. However, Barclays noted signs of market capitulation, which could lead to “buy the dip” strategies despite ongoing uncertainties regarding trade policies.
Charles Lemonides, founder of ValueWorks, has added long positions to his portfolio, viewing the recent correction as an opportunity. Europe’s stock attractiveness has diminished, especially with the STOXX 600 gaining 7.68% this year while the S&P 500 fell by 4%.
Challenges in the region, such as military spending in response to Russia’s war in Ukraine and tariff threats, add complexity. Anders Hall from Vanderbilt University noted that while U.S. markets carry their own risks, they are perceived as safer and more liquid than their European counterparts, which is beneficial amid volatility.