Stocks are in the pullback mode. Here's how hedge funds are reacting

Investing.com -- Hedge funds are shifting quickly as expectations for interest-rate cuts rise and markets pull back, according to Goldman Sachs.

The bank said in a report that after “a more dovish Fed rhetoric,” the market is now pricing an “~80% chance of a quarter-point cut at the December FOMC meeting, up sharply from ~30% last week.”

Goldman Sachs’ economics team expects a 25-basis-point cut at the December 9-10 meeting and still sees “two additional cuts in 2026.”

The bank noted that equity markets initially rallied, and hedge funds “have significantly net bought US equities in each of the past two trading sessions,” noting activity of “+2.2 SDs Friday and +1.6 SDs Monday vs. the past year.”

In dollar terms, Goldman Sachs said the pace of net buying was “the largest over any two-day period in more than six months and one of the largest in the past two years.”

Both Single Stocks and Macro Products were net bought, making up 56% and 44% of the total, Goldman Sachs said.

Meanwhile, “US-listed ETF shorts were net covered -2.5% on Friday and -2.4% on Monday,” reversing shorting activity from the prior week.

Positioning is said to have shifted most sharply in tech. Goldman Sachs stated that hedge funds “were heavy sellers of US Tech stocks last Thursday but turned buyers on Friday and Monday,” adding that Information Technology was “by far the most $ net bought US sector.”

Buying was led by semiconductors, hardware and communications equipment.

Themes also favored stability. Goldman Sachs said “quality/defensive characteristics remained in focus,” with megacap names in its AI beneficiaries basket attracting large inflows.

By contrast, its Non-Profitable Tech basket saw “relatively little net activity,” even as short flow in those names has risen in 14 of the past 15 sessions.

At the same time, hedge funds have continued to move into health care, net buying the sector for “5 straight days and in 15 of the last 17 sessions,” with allocations nearing five-year highs.

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