Hedge funds are selling individual stocks at the fastest pace in years, as tariff threats and recession fears have sent the market into a tailspin.
Professional fund managers have slashed their positions by the largest amount in over two years in the last several days.
Some of their activity is comparable to March 2020, when portfolio managers cut their exposure to the stock market as the Covid-19 pandemic hit, Goldman Sachs said in a note on Monday.
A hedge fund is a partnership of private investors whose money is pooled and managed by professional fund managers. These managers use a wide range of strategies, including both long and short positions on stocks.
On Friday last week and on Monday this week, managers cut back their risky investments by dramatically selling single stocks and covering shorts.
Their moves came as the stock market grew increasingly volatile.
Uncertainty around tariffs triggered a sell-off last week, which saw all three major indexes end the week in the red.
This continued into Monday, when Wall Street kicked off the week with one of its worst day in three years, as investors wrestled with economic uncertainty and fresh turbulence from Washington.
Hedge funds are selling individual stocks at the fastest pace in years, as tariff threats and recession fears have sent the market into a tailspin
The Dow Jones Industrial Average slid over 2 percent, the S&P 500 tumbled 2.7 percent, and the tech-heavy Nasdaq shed 4 percent in the day’s trading.
This marked the worst session for the index since September 2022.
Part of the stumble came as investors grappled with comments made by President Trump on Sunday.
In a Fox News interview, Trump refused to rule out the possibility that his aggressive trade policies could push the US into a recession.
Overall, the S&P 500 has fallen about 9 percent from its recent peak.
Brad Gerstner, Altimeter Capital founder and CEO, told CNBC he has lowered his firm’s risk exposure.
‘We have high economic uncertainty, high political uncertainty and high technological uncertainty. Only one thing can happen,’ he said.
‘Discount rates have to go up. Risk premiums have to go up. … So for us that was just a period to say, “OK we’ll go to the sidelines to wait this out.”‘
Hedge funds unwound long and short positions that Goldman Sachs said were crowded, or common among many investors.
Uncertainty around tariffs triggered a sell-off last week, which saw all three major indexes end the week in the red
In a Fox News interview on Sunday, Trump refused to rule out the possibility that his aggressive trade policies could push the US into a recession
The stock sell-off continued into Tuesday, but the market has slightly recovered on Wednesday after February’s inflation report came in lower than expected.
Inflation slowed in February following surprisingly hot data in January.
The price slowdown saw stock futures whipsaw between gains and losses.
The Consumer Price Index (CPI), which measures price increases across the most commonly purchased goods in the U.S., showed a 2.8 percent annual rise in overall prices in the economy.
This was below economists’ predictions, and showed movement closer to the Federal Reserve’s 2 percent target.
On Wednesday, the S&P 500 and the Nasdaq closed in the green.
‘The lower-than-expected CPI report for February brings a sigh of relief to investors,’ Bret Kenwell, the U.S. investment analyst at eToro, told the Daily Mail.
‘One reassuring inflation report won’t be enough to undo all of the recent losses, but it could help kickstart a much-needed relief rally as the S&P 500 is on the verge of correction territory.’
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