Key Takeaways
- • Hedge funds have pushed short exposure in global equities to near five-year highs, with short selling outpacing long buying by roughly five to one this month, according to Goldman Sachs prime brokerage data cited by Bloomberg.
- • Short leverage has reached the 99th percentile of its five-year range, while net leverage among fundamental long-short funds has fallen to near a three-year low.
- • Global fundamental long-short funds were down 2.5% in October as of Monday, cutting year-to-date gains to 10.1%; technology, media and telecom-focused managers have declined 7.4% month-to-date.
- • Goldman warns that crowded bearish positioning raises the risk of a short squeeze if equities rebound, though persistent inflation concerns and uncertainty over AI investment returns continue to weigh on sentiment.
Summary
Hedge funds have increased bearish equity positions to near five-year highs, raising the risk of a sharp short squeeze if markets rebound, according to a Bloomberg report citing Goldman Sachs prime brokerage data. Short selling has outpaced long buying across global equities by approximately five to one this month, with short leverage reaching the 99th percentile of its five-year range. Net leverage among fundamental long-short funds has fallen to near a three-year low, even as gross leverage has increased.
The defensive positioning follows a sharp reversal in artificial intelligence-related stocks, driven by stronger-than-expected US inflation data and mounting concerns over returns on AI infrastructure spending. The Nasdaq 100 fell 5.5% last week, its steepest weekly decline since April 2025. Global fundamental long-short funds were down 2.5% in October as of Monday, reducing year-to-date gains to 10.1%, according to Goldman. Technology, media and telecommunications-focused managers have suffered the heaviest losses, declining 7.4% month-to-date.
Selling has been concentrated in technology. Global information technology stocks recorded their largest two-week net selling since Goldman began tracking the data more than a decade ago, in the period to 16 October. Net allocation to Goldman's global AI stock basket has fallen to the 38th percentile of its one-year range, and the long-short ratio has dropped to the sixth percentile, leaving managers heavily positioned against a potential technology rebound. Europe has been the only major region to record modest net buying this month, while net exposure to the Magnificent Seven technology stocks has reached a record high despite broader selling across the sector.
Goldman flagged the possibility of a short squeeze, noting that crowded bearish positioning leaves funds vulnerable to a sudden recovery in equity prices. Persistent inflation concerns and uncertainty over AI investment returns, however, continue to weigh on sentiment.
The defensive positioning follows a sharp reversal in artificial intelligence-related stocks, driven by stronger-than-expected US inflation data and mounting concerns over returns on AI infrastructure spending. The Nasdaq 100 fell 5.5% last week, its steepest weekly decline since April 2025. Global fundamental long-short funds were down 2.5% in October as of Monday, reducing year-to-date gains to 10.1%, according to Goldman. Technology, media and telecommunications-focused managers have suffered the heaviest losses, declining 7.4% month-to-date.
Selling has been concentrated in technology. Global information technology stocks recorded their largest two-week net selling since Goldman began tracking the data more than a decade ago, in the period to 16 October. Net allocation to Goldman's global AI stock basket has fallen to the 38th percentile of its one-year range, and the long-short ratio has dropped to the sixth percentile, leaving managers heavily positioned against a potential technology rebound. Europe has been the only major region to record modest net buying this month, while net exposure to the Magnificent Seven technology stocks has reached a record high despite broader selling across the sector.
Goldman flagged the possibility of a short squeeze, noting that crowded bearish positioning leaves funds vulnerable to a sudden recovery in equity prices. Persistent inflation concerns and uncertainty over AI investment returns, however, continue to weigh on sentiment.
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