Hedge funds increased their bearish positions more than bullish ones in March, the highest ratio since 2020, as they anticipate further declines in U.S. stocks, according to a Goldman Sachs report.
Since the start of March, the S&P 500 has declined nearly 5%, while a global stock index excluding the U.S. has gained 3%, positioning it for the best first-quarter performance since 2019 with an 8% increase thus far. The U.S. Federal Reserve recently revised its economic growth outlook for the year downward and raised inflation projections amid ongoing uncertainty related to trade tariffs.
Instead of withdrawing from the market, as many investors did when stocks sharply dropped earlier in the month, hedge funds have continued to execute trades, showing a distinct preference for strategies that bet on further declines. Following the first week of March, hedge funds reduced their stock holdings over a 48-hour period at the fastest pace in four years, coinciding with a 3.1% drop in the S&P—the worst weekly performance in six months.
Bearish positions on U.S. stocks have surged, contrasting with Europe and Asia, where hedge funds have simply exited losing trades without reentering, according to Goldman Sachs.
Hedge funds' exposure to tech and media stocks has reached a five-year low; some are now shorting the sector, while others have increased bearish positions on AI-related shares. Funds focused on technology are down 4.1% this month, whereas those in healthcare show a negative return of 1.5%.
Global stock pickers have gained 1.5% this year so far, recovering from their worst two-week period since May 2022. Systematic hedge funds have benefited from the market decline, achieving an 8.9% return year-to-date.