Hedge funds are rapidly closing short positions in US equities at a pace not seen since the market rebound following the March 2020 pandemic crash, according to a report by Reuters citing data from Goldman Sachs.

The bank's prime brokerage division has reported a sharp acceleration in the covering of macro-related shorts – including major indexes and ETFs – following President Donald Trump’s announcement of a temporary ceasefire in the US-Iran conflict.

Hedge fund short exposure in these products had climbed to 12% of total gross exposure, the highest since the pandemic. The unwinding of these positions has contributed to a stock rally, with major indexes rising more than 2%, the fastest gain since 31 March.

Goldman expects continued short covering in heavily targeted sectors, including consumer discretionary and housing-linked stocks, while longer-term rotation may favour pre-war winners such as semiconductors and memory-chip makers as earnings season approaches.