Global hedge funds ramped up their bets against US stocks in the week leading up to 9 January, anticipating a strong US jobs report that triggered a Wall Street sell-off, according to a report by Reuters citing notes from Morgan Stanley and Goldman Sachs.
The US Labor Department’s employment report, closely monitored by the market, revealed a surge in job growth to 256,000 in December – the highest since March 2024 – while the unemployment rate dropped to 4.1%. This unexpectedly robust data led to a sharp decline in stocks, with the S&P 500 falling 1.54% on Friday, wiping out its gains for 2025.
Morgan Stanley noted that hedge funds increased their short positions, betting on declines in sectors such as consumer staples, software, financials, and healthcare. At the same time, they reduced long positions in communication services. However, the bank also reported that hedge funds were buyers of European and Asian stocks during the same period.
Goldman Sachs highlighted a similar trend, with short positions exceeding long additions globally, particularly in North America and Europe.
“We’ve seen a rotation where managers have been taking profits, selling their longs, and then adding to shorts,” said Jon Caplis, CEO of hedge fund research firm PivotalPath. He attributed this shift to the Federal Reserve’s more hawkish stance on interest rates and the heightened significance of major data releases like Wednesday’s consumer price index.
Despite the broader trend, the technology, media, and telecommunications sector was an exception, with hedge funds adding exposure at the fastest rate in three months, Goldman Sachs reported.
Technology stocks were among the hardest hit in Friday’s sell-off, falling 2.23%, following declines in financials and real estate. Major technology companies are set to begin reporting earnings after Martin Luther King Jr. Day on 20 January.
