Hedge funds sold off US cyclical stocks at the fastest rate seen so far this year last week, also kicking off their largest sell-off of US industrial stocks in more than 10 years, according to a report by Morningstar.

The report cites research from Goldman Sachs in showing that in the week ended 23 May, money managers launched a major exit from US stocks that are particularly linked with the health of the American economy, after the US Federal Reserve indicated its willingness to follow a tough line to lower inflation.

After minutes from a meeting on 1 May revealed that some Fed officials talked about holding interest rates at current levels for longer, or even raising rates again, in a bid to lower inflation to 2%, hedge funds sold off stocks in all American cyclical sectors, including industrials, financials, materials and real estate, at their fastest rate since December 2023, according to data compiled by Goldman Sachs' prime brokerage division.

The subsequent sell-off in industrial stocks saw hedge funds exit passenger airlines, machinery, ground transportation and professional services companies at the fastest rate seen across any two-week period in over a decade.