Hedge funds are swiftly reducing their positions in industrial stocks, turning their attention to sectors tied to commodities such as energy and materials amid rising geopolitical tensions and fears of economic slowdowns in the US and China, according to a report by Bloomberg.
The report cites a note from Goldman Sachs Group’s prime brokerage desk, as highlighting that industrials was the most net-sold US sector last week with the total dollar value of unwinds in this sector since 11 July reaching the highest on record over a two-week period.
The industrials sector encompasses a wide range of companies, making it challenging to pinpoint a single driving force behind the sell-off. However, market observers suggest that the upcoming US presidential election could be a factor. There are concerns about potential policy changes, especially regarding trade and tariffs, which could affect large companies with global operations. Notably, former President Donald Trump’s call for increased tariffs on Chinese goods has raised fears of retaliatory measures from China.
Earnings reports for Q2, meanwhile, have been mixed for industrials. While companies like American Airlines Group and United Parcel Service have lowered their earnings forecasts, General Electric has reported strong performance driven by demand for engines and maintenance services.
Despite recent sell-offs, the S&P 500 Industrials Index has outperformed the broader S&P 500 and the Nasdaq 100 over the past month. The Vanguard Industrials ETF, which experienced net outflows in May and June, is expected to see inflows for July.
Meanwhile, hedge funds are increasingly rotating into commodity-sensitive stocks. Energy and materials sectors were the most net-bought US sectors both last week and over the past four weeks, according to Goldman Sachs. Chemicals, oil, gas, consumable fuels, energy equipment and services were among the top net-bought subsectors.
