In the week leading up to February 23, global hedge funds engaged in substantial selling of tech stocks, marking the highest level of such activity in nearly eight months, according to a report from Goldman Sachs. This selling frenzy coincided with a surge in tech shares following Nvidia’s impressive earnings report, which propelled stock indices, including the tech-heavy Nasdaq, to record highs.
Goldman Sachs highlighted that the scale of tech share selling by hedge funds ranked among the highest observed in the past five years. Despite the overall optimism surrounding artificial intelligence, evidenced by the Nasdaq’s rally, hedge funds increasingly adopted bearish positions on tech stocks, with twice as many funds holding short bets compared to those with long positions.
Specifically, hedge funds targeted various segments within the tech industry for short bets, including manufacturing and service equipment for semiconductors, tech hardware, storage, IT services, and software companies. While these bearish positions reflect a shifting sentiment among hedge funds, traders have shown reluctance to entirely abandon their bullish outlook on tech, as indicated by a surge in call options on Nvidia, reaching a two-year high according to Goldman Sachs.
In addition to the derivatives bets observed in the tech sector, traders engaged in similar strategies across various segments of the U.S. stock market. These derivative bets, known as call options, allow traders to adopt a positive position in a stock only if it surpasses a predetermined price threshold.
According to Goldman Sachs, speculators demonstrated a bearish stance on U.S. stocks overall, marking the largest net selling activity in the region’s equity markets in five weeks. This trend was driven by persistently high price increases among service sector businesses, highlighting concerns about inflation and leading to revised expectations for interest rate cuts in 2024.
As a result of these shifting dynamics, traders divested from tech, health care, and industrial stocks, opting instead to increase their exposure to consumer staples stocks. This buying activity, which marked the largest accumulation of consumer staples stocks in ten weeks, focused on companies producing essential everyday products. Notably, the purchased stocks included those from companies involved in distribution, retail, beverages, and household products, excluding tobacco-related companies.
The increased regulatory scrutiny on e-cigarettes poses potential challenges for major tobacco companies involved in their production. This intensified focus comes amidst recommendations from the World Health Organization (WHO), which, in December 2023, called for governments to regulate e-cigarettes akin to traditional tobacco products. Specifically, the WHO advocated for the prohibition of all flavored e-cigarettes, aligning them more closely with tobacco regulations.
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