Hedge funds are selling off technology stocks at the fastest pace in two years, executing a massive deleveraging event even as the S&P 500 Index touched new highs, according to a Goldman Sachs Group Inc. prime brokerage report.
The report highlights a growing divergence within the US stock market, where headline index gains are masking underlying weakness. On a day the S&P 500 set a record high, 324 of its components actually finished lower, producing the second-worst market breadth on record for such a day.
"Once tech stocks start to fall, there is a long way to go," Goldman's trading desk noted, pointing to the still-crowded positioning in the sector. Despite the recent selling, hedge fund exposure to information technology remains at the 98th percentile for the past five years.
The data for the week ending April 25 showed that hedge funds’ gross leverage fell by 4.6%, the largest nominal deleveraging in seven months. The selling was concentrated in the information technology sector, which saw its largest single-week deleveraging since July 2024. The offloading was driven by long sales in software and semiconductor stocks.
The consumer discretionary sector also faced heavy selling pressure, with hedge funds reducing exposure for the seventh consecutive week. In contrast to the hedge fund retreat, asset managers showed signs of "re-risking" by adding to positions in some technology areas, while short covering was noted in various US-listed ETFs.
The selloff comes at a pivotal moment, with markets weighing concerns over rising oil prices and the fading impact of fiscal stimulus. All eyes are now on the upcoming earnings reports from technology giants Meta Platforms Inc., Microsoft Corp., Alphabet Inc., and Amazon.com Inc., which will be critical in determining if the sector can justify its lofty valuations and maintain its market leadership. The Philadelphia Semiconductor Index (SOX) rallied 9% last week, showing investor confidence in the AI narrative, but the broader tech sector's fate hangs on this week's results.
This article is for informational purposes only and does not constitute investment advice.
