Hedge funds call time on tech rally, Goldman Sachs says

By Thomson Reuters Feb 26, 2024 | 2:29 PM

By Nell Mackenzie

LONDON (Reuters) – Global hedge funds sold tech stocks at their highest pace in almost eight months in the week to Feb. 23, Goldman Sachs said, piling into bets against the sector just as Nvidia’s latest earnings fuelled a surge in tech shares.

The tech share selling by hedge funds ranked among the highest seen in the last five years, according to the Goldman Sachs note released on Friday and seen by Reuters on Monday.

Stock indices, including the tech-heavy Nasdaq, have rallied to record highs on optimism about artificial intelligence. Chipmaker Nvidia added $277 billion in stock market value on Thursday, Wall Street’s largest one-day gain in history, after its quarterly report beat expectations.

But in a sign that sentiment may be turning, twice the number of hedge funds now have short bets that tech stock prices will fall versus those with long positions, Goldman Sachs said.

Hedge funds took out short bets against stocks from tech companies across the sector. They exited long positions and added short punts on manufacturing and service equipment for the semiconductor industry, tech hardware, storage and IT services, the bank said.

The speculators added short bets to software companies, it added.

However, traders remained reluctant to completely sever their positive positions in tech, a separate note from Goldman Sachs said. That pointed to a two-year high in call options on Nvidia.

These are derivatives bets which only make the trader long if the stock passes a certain price threshold – a way to express a positive position in the stock but only if it rises to a certain extent.

Speculators were generally short U.S. stocks, piling into the largest net selling of the region’s equity markets in five weeks, the first Goldman Sachs note said.

Persistent price rises by U.S. service sector businesses have underscored the stickiness of inflation and pushed back expectations for interest rate cuts in 2024, denting hopes for a soft landing.

Traders ditched tech, health care and industrial stocks and instead bought the largest amount consumer staples stocks in ten weeks, adding companies which make products that people routinely buy, Goldman Sachs said.

These included stocks from companies linked to distribution, retail, beverages and household products, but not tobacco, it added.

Regulators worldwide have increased scrutiny on E-cigarettes, possibly spelling trouble for some big tobacco companies that make them.

The World Health Organization (WHO), in December 2023, urged governments to treat e-cigarettes similarly to tobacco and ban all flavours.

(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe and Andrew Heavens)