Hedge funds are retreating from US equities, paring back exposure for a fourth consecutive week amid persistent trade war uncertainty and stretched valuations, according to a report by Bloomberg citing a note from the prime brokerage union at Goldman Sachs.
The pullback comes as the S&P 500 hovers near record highs, highlighting a widening divergence between institutional caution and retail optimism. Hedge funds, especially those with exposure to technology, media, and telecom (TMT) sectors, unwound positions at the fastest pace in over a year, in a move seen as preemptive ahead of earnings and potentially turbulent geopolitical headlines.
Despite a 27% rally in the S&P 500 from its April lows, many hedge fund managers have remained on the sidelines, wary of renewed tariff volatility and macroeconomic uncertainty — particularly following U.S. President Donald Trump’s renewed threats against China and other trading partners.
Goldman’s trading desk reports that short-covering has not kept pace with selling, suggesting that hedge funds are not rotating into risk, but instead positioning defensively. This cautious tone contrasts with retail flows, which have remained positive for 23 consecutive trading sessions, driven by expectations of continued economic strength and supportive central bank policy.
The Fed held rates steady last week, with Chair Jerome Powell signalling that further clarity is needed on tariffs and inflation before any policy shift — further muddying the near-term outlook for risk assets.
While hedge fund performance has been moderately positive, with the PivotalPath Equity Diversified Index returning 7.8% through June, that figure lags the broader equity market. Still, fund managers may yet be vindicated. Historically, August and September have been the weakest months for equities, especially in a US president’s first year in office, according to UBS macro strategist Aaron Nordvik.
