Hedge funds have placed a record number of short bets against stocks since U.S. President Donald Trump announced his reciprocal trade tariffs on April 2.
According to U.S. investment bank Goldman Sachs (GS), which tracks the moves of major hedge funds around the world, the so called “smart money” remains bearish on stocks.
Hedge fund managers and professional traders made their biggest ever one-day sale of stocks on April 3 immediately after Trump announced baseline tariffs of 10% on nearly all U.S. imports.
At the same time, hedge funds quickly added protection as fears grew that Trump had set off a global trade war that will lead to an economic recession, said Goldman Sachs.
Hedge funds scrambled to adjust their positioning and equity exposure as the Dow Jones Industrial Average posted back-to-back losses of more than 1,500 points, a record two-day decline.
The benchmark S&P 500 index fell 10% in only two trading sessions – April 3 and 4. Trump’s policies could raise the U.S. tariff rate from 2.5% to above 20%, the highest level since 1910.
Hedge fund managers wasted little time selling stocks and going into what Goldman Sachs called “self-protection mode.”
Nine of 11 investment sectors in the S&P 500 index were net sold over the past week, led by financials, technology, and consumer discretionary stocks, said Goldman Sachs.
The selling in financials was at the fastest pace since January 2021 and the second fastest pace on record, noted the Wall Street investment firm.
Goldman Sachs also stressed that there is likely to be increased volatility in the market in coming weeks due to the massive number of short positions, which are bets that stocks will continue to fall.
The stock of Goldman Sachs has declined nearly 20% this year to currently trade at $465.51 U.S. per share.