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Global hedge funds have begun reinvesting in U.S. equities following a significant market downturn, signaling renewed confidence in the American market.
According to Goldman Sachs’ analysis, after reducing their U.S. stock positions on March 7 and 10, hedge funds resumed building exposure to America’s market throughout the remainder of the week until Thursday. The bank reported that funds increased both their long and short positions in U.S. stocks, though their global portfolios adopted a more bearish stance overall, with short positions growing proportionally larger than long positions. JPMorgan confirmed this trend in their own analysis.
Meanwhile, investment managers continued reducing their exposure to European and Asian markets, Goldman Sachs noted. European stocks experienced their fastest selling rate in more than five years, with similar patterns observed in Asian emerging markets.
The market witnessed its most substantial two-day deleveraging in four years during Friday and Monday, with activity levels reminiscent of the early COVID-19 pandemic period, according to earlier Reuters reporting.
Softbank’s Masayoshi Son just committed $500 billion to invest in the United States.
Capital is flowing to benefit from the golden age of innovation we are entering. pic.twitter.com/TaBvpsD3sb
— Anthony Pompliano 🌪 (@APompliano) January 21, 2025
U.S. major indices recorded losses last week as market participants expressed concerns about economic prospects amid uncertainty surrounding President Donald Trump’s tariff policies. However, markets rebounded on Friday, with the S&P 500 gaining 2.18%, the Dow Jones Industrial Average rising 1.74%, and the Nasdaq climbing 2.68%.
The hedge funds’ return to U.S. markets stems from various motivations, including value-seeking investors and those increasing bearish positions. CTAs (commodity trading advisers) maintain net short positions in U.S. equities, JPMorgan reports.
Barclays identified potential capitulation signals in the U.S. market, suggesting possible “buy the dip” opportunities, though tariff policy uncertainties might limit this trend.
Charles Lemonides, ValueWorks’ long/short equities hedge fund founder, expanded his long U.S. positions during the selloff, viewing the 10% correction in both Nasdaq and S&P as opportunistic. “The market has been going down and extrapolating that it will continue to go down. We obviously haven’t seen a recession or a real economic slowdown yet,” he said.
Hedge funds have been piling into US stocks during the selloff, dumping Europe during the meltup (Goldman PB) pic.twitter.com/Ptij5ojrs5
— zerohedge (@zerohedge) March 14, 2025
The STOXX 600’s 7.68% year-to-date gain, contrasting with the S&P 500’s 4% decline, has diminished the valuation gap between U.S. and European markets, reducing the appeal of European stocks.
Anders Hall, Vanderbilt University’s chief investment officer, noted hedge funds’ increasing caution, acknowledging persistent uncertainties around U.S. trade policies and recession risks, while recognizing Europe’s unique economic and political challenges.
Europe faces its own hurdles, including a rearmament initiative driven by concerns about U.S. protection reliability amid the ongoing Russia-Ukraine conflict. Germany has announced major defense and infrastructure investments, while the region confronts tariff threats.
“The U.S. market, while not without risks, may be seen as a relatively safer bet by some,” Hall remarked, highlighting U.S. markets’ superior liquidity compared to Europe’s – an advantage during periods of heightened volatility requiring position adjustments.
