Hedge Funds Boost Bets Against U.S. Stocks Ahead of Jobs Report
Global hedge funds significantly increased short positions in U.S. stocks leading up to the release of a stronger-than-expected December jobs report. The data, revealing unexpected resilience in the labor market, triggered a Wall Street sell-off, with the S&P 500 shedding 1.54% on Friday and erasing its 2025 gains.
Blowout Jobs Report Sparks Stock Market Sell-Off
The U.S. Labor Department reported a robust addition of 256,000 jobs in December, the highest since March, while the unemployment rate dropped to 4.1%. This data surpassed expectations and fueled concerns about the Federal Reserve delaying rate cuts. As a result, stocks spiraled downward, with sectors like technology, financials, and real estate taking significant hits.
Hedge Funds Shift Portfolios Ahead of Data Release
Morgan Stanley noted a strategic increase in short positions across sectors, including staples, software, financials, and healthcare. Portfolio managers also reduced long positions in communication services ahead of the jobs report. In contrast, European and Asian stocks saw inflows as hedge funds diversified globally.
Goldman Sachs echoed this trend, reporting that short additions outpaced long positions, particularly in North America and Europe.
Federal Reserve’s Influence on Hedge Fund Strategy
The Federal Reserve’s hawkish tone on interest rate cuts has intensified hedge fund caution. According to PivotalPath CEO Jon Caplis, “Managers have been taking profits, selling their longs, and then adding to shorts.” This repositioning also reflects market anticipation of significant data releases, such as the upcoming consumer price index.
Technology Stocks Defy Broader Hedge Fund Trend
While most sectors faced increasing short interest, the technology, media, and telecommunications (TMT) sector was a rare exception. Goldman Sachs highlighted that hedge funds added to TMT stocks at their fastest pace in three months, even as technology stocks dropped 2.23% on Friday.
Big tech earnings, set to start after Martin Luther King Jr. Day, could play a pivotal role in shaping market sentiment in the coming weeks.
Global Hedge Fund Trends Show Regional Diversification
Despite the bearish positioning in U.S. equities, hedge funds increased their exposure to European and Asian stocks. This global diversification suggests a strategic hedge against heightened U.S. economic uncertainty.
Market Outlook Amid Hedge Fund Positioning
As two of the largest global prime brokers, Morgan Stanley and Goldman Sachs’ data on hedge fund activity reflect caution across equity markets. With significant upcoming economic indicators and big tech earnings on the horizon, investors should brace for continued volatility.