The risks are beginning to outweigh the rewards for hedge funds as they grapple with an unusual 2023 U.S. stock market.
Professional managers who are both bullish and bearish on equities trimmed positions on both sides of the book last week, according to aggregated data from JPMorgan Chase & Co.’s prime brokerage division. The rush to adjust positions has been furious, with total client stock flow reaching the highest level since the short squeeze spurred by individual investors in 2021.
Morgan Stanley hedge fund clients showed a similar pattern of de-risking, albeit at a slower pace. Last week’s “degroshing” move was the biggest so far this year. Goldman Sachs Group Inc. fund clients have also reduced their positions in 12 of the last 14 sessions.
This downward movement ischange in sentimentmay indicate Almost everyone was defensive at the beginning of the year, but then they were forced to deal with the gravity-defying ascent. The S&P 500, which has been positive for all but two months since October, has risen 28% over the period, about 200 points away from making up for all its 2022 losses.
In a report titled “Succumb—Degrossing Accelerates Amid Earnings Week,” J.P. Morgan’s team led by John Schriegel notes that “higher stocks may be good news for longs, but not for hedge fund shorts. “It’s quite an ordeal, and it appears to be leading to a broader surrender in the form of degrowing.”
That’s another blow from this year’s rally in stocks. Instead of falling as many expected, stocks rose significantly. The reason behind this is that the economy held up despite aggressive measures to curb inflation by the US Fed. During this process,strategisthastily raised its year-end S&P 500 target, while fast money managersshort coverand was forced to respond to the rise.
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news-rsf-original-reference paywall">Original title:Hedge Funds ‘Throwing In Towel’ on Stocks as Rally Forces Unwind(excerpt)
2023-07-31 23:42:00
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