Hedge funds are snapping up economically sensitive stocks, betting on a rebound after recent selloffs driven by tariff-related recession fears in the US market, according to a report by Bloomberg citing data from the prime brokerage unit at Goldman Sachs.
Last week, hedge funds aggressively bought shares of banks, energy producers, and other cyclical companies at the fastest pace since December. These sectors had been among the hardest hit, with one key index falling nearly 10% from its recent highs amid President Donald Trump’s shifting tariff policies and concerns over U.S. economic growth.
“This year’s weakness in cyclicals was seen by some as an opportunity to buy the dip and re-enter at a better price,” said Jonathan Caplis, CEO of PivotalPath, who noted that fund managers view US financials and traditional energy stocks as less exposed to tariff risks than other sectors.
Signs of a rebound in cyclical stocks are emerging. The KBW Bank Index posted an eight-session winning streak – its longest since 2016 – before retreating on Wednesday as fresh tariff concerns resurfaced. A Citigroup index tracking cyclical stocks against defensive sectors like utilities and healthcare has also clawed back nearly half its recent losses.
If cyclicals continue to recover, it could indicate that investors see the economic impact of tariffs as less severe than initially feared.
Some investors are watching the relationship between cyclicals and defensive stocks, which traditionally act as safe havens during economic uncertainty. Bank of America strategist Jill Carey Hall noted that last week, the bank’s clients were larger net buyers of cyclicals than defensive stocks, signalling that they aren’t positioning for an imminent recession.
However, not everyone shares this optimism. Some market participants still believe tariffs could trigger a US economic downturn, and that markets have yet to fully price in this risk, despite a 7% drop in the S&P 500 from last month’s record high.
Stuart Kaiser, Citigroup’s head of US equity trading strategy, suggested that part of the rebound in cyclical stocks may be driven by expectations that the Trump administration’s tariff policies will be more targeted and less damaging than initially feared.
