Market Shift: Hedge Funds Bet Against US Stocks Ahead of Jobs Report
As the US Labor Department released its highly anticipated employment report on Friday, global hedge funds had already positioned themselves for a potential downturn. According to notes from Morgan Stanley and Goldman Sachs, hedge funds increased their bets against US stocks in the days leading up to the report, which ultimately showed a surge in job growth and a drop in unemployment.
A Sell-Off on Wall Street
The stronger-than-expected jobs data sent shockwaves through the market, causing the S&P 500 to plummet 1.54% on Friday and erase all its 2025 gains. This sudden shift in sentiment was largely driven by hedge funds, which had been adjusting their portfolios in anticipation of the report.
Sector Rotation: Where Hedge Funds Are Placing Their Bets
Morgan Stanley revealed that portfolio managers increased their short positions in sectors such as staples, software, financials, and healthcare, while simultaneously selling long positions in communication services. However, the bank also noted that hedge funds were buying European and Asian stocks during the same period. Goldman Sachs echoed this trend, stating that short positions outpaced long additions to portfolios across all regions, with North America and Europe leading the way.
A Hawkish Fed and Big Data Releases
According to Jon Caplis, CEO of hedge fund research firm PivotalPath, this shift in sentiment is also linked to the Federal Reserve’s more hawkish stance on interest rate cuts and the release of key economic indicators, such as the consumer price index. “Managers have been taking profits, selling their longs, and then adding to shorts,” Caplis explained.
Technology Sector: A Rare Bright Spot
One notable exception to this trend was the technology, media, and telecommunications sector (TMT), which saw hedge funds adding positions at the fastest pace in three months, according to Goldman Sachs. Despite this, technology stocks were among the hardest hit on Friday, falling 2.23%. Big tech companies are set to report earnings after Martin Luther King Jr. Day on January 20.
Tracking Hedge Fund Positioning
As two of the largest global prime brokers, Goldman Sachs and Morgan Stanley closely monitor the portfolios of their hedge fund clients to identify positioning and flow trends. This insight provides a unique window into the minds of hedge fund managers and their expectations for the market.
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