Hedge funds amplify bearish stance amid economic slowdown concerns, Goldman reports

A global swarm of hedge funds continued to add bearish equity bets to portfolios for the third week running after fresh figures indicated that the economy of the United States was slowing at a faster pace than had been estimated. That's according to a note from Goldman Sachs, which addressed the changes in hedge fund strategies toward more guarded positioning.

Hedge funds have added short positions at about three times the rate of long positions—adding one new long for every 3.3 short bets. The shift in sentiment follows a pair of troubling economic data releases back-to-back days that showed job creation slowing and manufacturing activity decreasing. Reflecting these concerns, the Nasdaq Composite slid into correction territory Tuesday, closing down 2.43 per cent.

Hedge funds have been reducing exposure to seven of the eleven global sectors, including financials, industrials, real estate, and energy. In addition, healthcare stocks have sold out at a rate not seen for almost a year. A broad reduction in sector exposure would underline growing unease among hedge fund managers over the health of the global economy.

Another Goldman Sachs report indicated that fundamental long/short hedge funds had their worst performance day since June 2022, with Friday's average losses amounting to 1.8 per cent. This marks weeks of unwinding risk bets that many hedge funds have done to cut probable losses amid rising economic uncertainty.

The overall summary is that hedge funds continued to bet bearishly on an economic slowdown. Weaker-than-expected economic indicators give hedge funds the reason to position for the turbulent market ahead, which is not very positive—it reflects deeper, broader concerns about the sustainability of current economic growth and the potential for further market volatility in the coming months.