Hedge funds remained net sellers after the Fed, says JPMorgan By Investing.com

Investing.com — Hedge funds ( HF ) remained net sellers following the Federal Reserve’s interest rate cut, JPMorgan revealed in a recent report.

Despite expectations of a change in market behavior, the selling pressure that began before the Fed announcement persisted throughout the week.

Hedge funds were net sellers with a score of -1.3z over the past five days, indicating a continued reduction in earnings even after the Fed’s first interest rate cut in years. Gross and net leverage levels among the funds were largely unchanged from week to week.

“With all the anticipation/speculation as we approach the start of the US easing cycle, very little appears to have changed in terms of investor behavior,” JPMorgan said in the note.

Retail investor activity remained muted, with low single share flows and little change in exchange traded fund (ETF) activity. In the options market, call/put ratios turned modestly positive and futures saw some buying activity.

Selling in the US tech sector resumed, with HFs targeting Magnificent 7 and Tech Hardware stocks in particular, according to the report.

“Mag7 flows continue to be choppy as HFs appear to be looking to trade it tactically (buying both early August and early September dips and selling subsequent rallies) and the long/short ratio somewhat neutral at ~ 60%-tile,” the note reads. .

Meanwhile, retail investor flows into stocks have started to recover from recent lows, along with an increase in retail call option volume. Both stocks peaked in July with gains in Tech, AI and Crypto stocks, and a rebound in retail flows could provide support for the tech sector going forward, JPMorgan points out.

Outside the US, hedge fund flows were mixed. European hedge funds continued to sell consumer discretionary and industrials for the second straight week. Meanwhile, defensives such as Household & Personal Products, Telecom and Utilities were also sold off amid disappointing performance in these sectors.

In Asia, however, the picture was different. Hedge funds reversed their earlier selling trends, particularly in shares in China, Taiwan and Hong Kong, which saw significant buying. In contrast, South Korea posted minor net sales, while Japan’s flows remained neutral.

Globally, funds have added more shorts than longs over the past four weeks, with short flows at +1z and long flows at -0.5z. But overall, hedge fund performance has seen some rebound in the past week, particularly in Equity Long/Short funds.

Looking ahead, the bank does not believe that the current positioning will prevent continued growth in the markets. However, the near-term outlook remains mixed due to factors such as a lack of enthusiasm from hedge funds, reduced seasonality and some mixed data from the past week.

“Ultimately, we still think the dips are likely to be bought if the macro context remains supportive and history suggests a likelihood of further year-end gains,” JPMorgan said.