Hedge funds are selling tech stocks at the fastest pace in two years, revealing cracks within the US stock market.

```

Behind the new highs of the indexes, hedge funds are exiting tech stocks at their fastest pace in two years.

Last week (through April 25), both the S&P 500 and Nasdaq rose, with the Nasdaq 100 (NDX) up 2% for the week. However, according to data from Goldman Sachs’ trading desk, this rally is far from being a broad-based bull market.

On Friday, the S&P 500 hit an all-time high, yet 324 constituent stocks closed lower that day, with a net breadth reading of -148—marking the second worst market breadth on a record high day, only behind October 2025, when 80% of S&P constituents fell on a day of record highs.

Beneath the surface boom, divisions within the market are already quite evident.

Hedge funds aggressively de-leverage, tech stock sell-off hits two-year high

Goldman's weekly prime brokerage report shows that last week total gross leverage among US long-short hedge funds dropped 4.6%, the largest nominal de-leveraging in US equities in seven months (since September 2025), mainly driven by risk unwinding in single stocks.

US equities have now seen net selling by hedge funds for a second consecutive week, with nine out of the past ten weeks showing net selling, and the sell-off coming almost entirely from long position unwinding. Nine out of eleven sectors saw net selling.

The most notable is the Information Technology sector: last week, its single-week de-leveraging was the largest since July 2024 and the third largest in the past five years. Specifically, the ratio of long selling to short covering was 1.9:1, with nearly all subsectors de-leveraged. By scale in USD: software (long selling > short covering), semiconductors & semiconductor equipment (long selling), tech hardware (short covering > long selling), communication equipment (long selling > short covering).

Worryingly, despite heavy de-risking this week, the total exposure of the IT sector still makes up 20.6% of US equity market cap, at the 92nd percentile for the past year and the 98th percentile for the past five years. Goldman noted this means "once tech stocks start falling, there is still a long way to go."

Consumer Discretionary stocks face seven straight weeks of sell-off, retail sector under pressure

The Consumer Discretionary sector is also facing difficulties. Hedge funds have net sold this sector for seven consecutive weeks, and last week's sell pace was the fastest in nearly ten weeks (-2.1 standard deviations vs last year), again almost entirely from long position unwinding.

Within subsectors, broadline retail, hotels/restaurants/leisure, and textiles/apparel/luxury goods saw the biggest declines.

As for portfolio allocation, Consumer Discretionary currently accounts for 11.5%/13.2% of hedge fund US stock total/gross exposure—at the 14th/7th percentile for the past year, and the 3rd/29th percentile for the past five years—already reduced to historical lows.

Goldman’s trading desk also noted that the retail sector underperformed the market for four consecutive days last week, with a relative gap accumulated to -350 basis points. "There is no clear single reason; it just seems concerns about oil prices, input costs, and fading fiscal stimulus effects are piling up, with attention shifting to the second half of the year."

Divergence Between Asset Managers and Hedge Funds; ETF short positions continue to be covered

In stark contrast with hedge funds’ caution, data from Goldman's equity sales/trading desk shows that asset managers have increased allocations in certain tech sectors, indicating a "re-risking" trend.

Macro products (indices and ETFs combined) saw small net buying last week (+0.1 standard deviations vs last year), driven by moderate long buying and continued short covering, at a 2.7:1 ratio. US-listed ETF short positions fell by 1.4% on the week, down 21.5% for the month, with the covering mainly in credit, IT, and small-cap stock ETFs.

AI narrative supports Nasdaq, but this week's earnings will be a key test

Despite hedge funds reducing positions, the market overall continues to digest positive AI datapoints. Goldman’s trading desk noted that intensifying Google partnership announcements and strong earnings from Intel (INTC), Texas Instruments (TXN), Lam Research (LRCX), and SK Hynix revived market confidence in chips and AI trades. The Philadelphia Semiconductor Index (SOX) jumped 9% last week, with an RSI of 85. Intel’s better-than-expected results and guidance led AMD, ARM, Qualcomm (QCOM), and other peers to rise over 10% in a single day.

But this week will be the real test—Meta, Microsoft (MSFT), Google (GOOGL), and Amazon (AMZN) will all report earnings after the bell on Wednesday. With hedge funds having already sharply reduced their positions, these earnings will directly determine whether tech stocks can hold onto their current gains.

Risk warning and disclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ specific objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situations. Investments based on this are at your own risk. ```