Hedge fund positioning in global equities is showing signs of capitulation, according to analysts at Goldman Sachs, with aggressive shorting activity and systematic selling potentially setting the stage for a sharp market rebound, according to a report by Bloomberg.
Data from the bank’s prime brokerage desk indicates that hedge funds have reduced net equity exposure for six consecutive weeks, primarily through increased short positions. The selling has been broad-based across regions, with European macro-linked shorts rising to their highest levels in a decade.
The pullback has pushed major indices closer to oversold territory. The Nasdaq 100 has entered correction territory, while the S&P 500 is approaching a similar threshold. In Europe, the Stoxx 600 is on track for its steepest monthly decline in several years.
Goldman’s desk noted that recent flows suggest hedge funds are nearing peak bearishness, with US equity selling over the past six weeks ranking among the largest seen in the past decade. The scale of positioning shifts has drawn comparisons with previous stress events, including the pandemic-era sell-off.
Systematic strategies have also contributed to downward pressure. Commodity trading advisors (CTAs) have offloaded an estimated $190 billion in equities over the past month and are now running net short positions globally. However, Goldman analysts suggest this trend may be nearing exhaustion, with models indicating CTAs could turn buyers under a range of market scenarios.
Additional technical factors may support equities in the near term. Pension fund rebalancing flows are expected to drive buying activity, while the expiry of significant negative gamma positions among options dealers could reduce volatility-driven selling pressure.
For hedge funds, the combination of stretched short positioning and mechanical selling dynamics points to a potentially asymmetric setup, where any easing in geopolitical tensions—particularly around the Iran conflict—could trigger a rapid reversal in risk assets.
