Hedge Funds "Flip from Short to Long": U.S. Stocks See Highest Two-Day Net Buying in Six Months, Technology Stock Shorts Aggressively Covered

An important shift has emerged in the U.S. stock market's deleveraging trend: Hedge funds have significantly net bought U.S. stocks in the past two trading days, with the cumulative buying volume reaching a new six-month high.

According to data from Goldman Sachs' prime brokerage, hedge funds net bought U.S. stocks by 2.2 and 1.6 standard deviations on Friday and Monday, respectively. The cumulative net buying volume, measured in U.S. dollars, is the largest for any two days in over six months, and also one of the highest in the past two years. In the previous three weeks, hedge funds had already been net buyers of U.S. stocks, but the buying intensity was far lower than the two days at the end of last week.

The market reversal stems from sudden changes in expectations for Federal Reserve policy. The probability for a 25 basis point rate cut in December has surged from 30% a week ago to 85% now. Goldman Sachs’ economic research team now fully expects a 25 basis point rate cut in December and maintains its forecast of two additional rate cuts in 2026, at which point the federal funds rate would fall to 3.125%.

In this wave of buying, single stocks and macro products accounted for 56% and 44% of the net notional buying volume in U.S. equities, respectively. Short positions on U.S.-listed ETFs were covered by 2.5% and 2.4% on Friday and Monday, essentially reversing last Thursday's sharp ETF shorting activity during the market's intraday reversal.

Tech Stocks Shift from Major Selling to Top Buying Target

The information technology sector was the U.S. stock sector with the largest net buying amount in the past two trading days.

Last Thursday, hedge funds were still heavily selling U.S. tech stocks, but by Friday and Monday they promptly turned into buyers. The buying activity was mainly driven by long positions being built, with short covering playing a supporting role, at a ratio of about 4:1.

Subsectors such as semiconductors and semiconductor equipment, tech hardware, and communications equipment led the gains, with most subsectors recording net buying.

Goldman's U.S. AI beneficiary stock basket constituents saw a large-scale net buying inflow on Friday and Monday, driven mainly by mega-cap tech stocks. In contrast, there was relatively little net activity among constituents of the unprofitable tech stock basket—it is notable that total short flows in unprofitable tech stocks have increased for five consecutive trading days, with 14 increases in the past 15 trading days.

Quality and defensive characteristics continue to be a focus for hedge funds. The momentum for buying healthcare stocks has persisted, with hedge funds posting net buying for five consecutive trading days, and net buying on 15 out of the past 17 trading days. The total allocation and net allocation of this sector as a proportion of total U.S. prime brokerage holdings currently approaches a five-year high, sitting at the 98th percentile.

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