Hedge Funds Turn Bearish on Equities, Short Sellers Rake in Profits

Hedge funds globally have taken a bearish turn on equities, with short sellers reaping the benefits in the last 30 days. According to Goldman Sachs, hedge funds have shifted from long to short positions in North America, Europe, and developing Asia due to concerns over inflation and geopolitical risks.

The U.S. S&P 500 stock index has dropped by 4% in April, while Europe and China indices have also seen declines. Hedge funds have reduced their net leverage, indicating a more cautious approach to trading.

Consumer discretionary stocks, energy companies, and software sectors have been targeted by short sellers, while long positions have been added in consumer staples, health-care, and semiconductor stocks.

Short sellers have made a profit of over $25 billion by covering their positions, erasing losses from earlier in the year. Overall short exposure in U.S. and Canadian equities has fallen by $50 billion in the last month.

The current market weakness has allowed short sellers to recover from losses incurred during the previous year’s bull market. This shift in sentiment among hedge funds reflects growing concerns about high valuations, inflation, and geopolitical risks in the market.