Goldman logs biggest net buying since 2020 after hedge unwind

After the steepest hedge fund deleveraging in three years, Goldman Sachs' trading desk recorded its largest weekly net buying since November 2020.

Goldman's desk logged its largest weekly net buying since November 2020, almost all short covering, after hedge funds' steepest deleveraging in three years.

"Hedge fund flows showed clear capitulation characteristics at the start of the week," Goldman's Delta One desk wrote in its Weekly Rundown, before blowout earnings from Microsoft and Amazon reversed the trend.

The S&P 500 rose about 1 percent for the week, while the Nasdaq 100 jumped 3.36 percent on Thursday as Microsoft climbed 15 percent after its cloud business beat estimates and Amazon added 12 percent after AWS revenue grew 37 percent year over year. Macro products accounted for 58 percent of the net buying, with short covering outpacing long selling 3.4 to 1, while single stocks made up 42 percent at a 2.1 to 1 ratio.

The reversal leaves a $100 billion-plus overhang of leveraged chip longs held through total return swaps, which Goldman warns could trigger forced liquidations if equities slide again — keeping momentum-factor volatility the key gate for a full re-entry.

The three-day deleveraging through Tuesday was the largest in Goldman's prime brokerage records since November 2022, with single-stock unwinds the biggest since March 2025. Globally, the pullback was the steepest since the January 2021 meme-stock frenzy and the second largest of the past decade, with short covering outpacing long selling 1.3 to 1. North America, dominated by short covering, and emerging-market Asia, led by long selling, saw the biggest reductions.

The momentum factor GSPRHIMO fell 7 percent for the week before surging 13 percent in a single session Thursday, its biggest one-day gain in more than a decade. The reversal came as the Federal Reserve's hawkish hold — three members voted for a hike and Chair Kevin Warsh offered no forward guidance — pushed the 30-year Treasury yield to its highest since 2007, yet equities still rallied.

Sector rotation favors tech and materials

Eight of 11 sectors saw net buying, led by information technology, consumer discretionary, financials and materials. Healthcare, utilities and consumer staples were the only net sellers. Hedge funds bought U.S. information technology stocks for a second straight week at the fastest pace since December 2022, with software, semiconductors and tech hardware leading. The "Magnificent Seven" saw net buying for four consecutive sessions, lifting net allocation to about 16 percent, near the 12th percentile of the past year.

U.S. materials saw their largest net buying in four months, ranking in the 98th percentile of a five-year lookback, almost entirely from long buying across chemicals, building materials and containers. Gross and net allocations stand at 3.2 percent and 2.5 percent of U.S. net market value.

Total leverage for U.S. long-short funds rose 3.9 percentage points to 208.1 percent, in the 18th percentile of the past year, while net leverage gained 1.1 points to 52.8 percent, in the 45th percentile, according to Goldman's Vincent Lin. The low absolute levels suggest room to add risk, but also that the rebound is not built on high leverage.

Gray swan overhang

Goldman flagged a potential gray swan: more than $100 billion in chip longs held by hedge funds through total return swaps, positions it estimates could trigger further forced liquidations and position transfers if the market drops again. The collapse of hedge fund Situational Awareness, which moved its public equity positions to Citadel, removed one forced-selling overhang but not the broader TRS exposure.

Investors have asked Goldman how to rebuild tech and AI exposure, with storage-chip makers WDC and STX, analog semiconductor firms ADI and TXN, and hyperscalers Amazon and Microsoft among the names cited. For a full re-entry signal, Goldman said momentum-factor volatility must first stabilize.

This article is for informational purposes only and does not constitute investment advice.