Hedge Fund Selling Has Never as Furious as It Has Been in the Last Two Days

The smart money sold equities at the quickest rate on record, sending the S&P 500 into a bear market.

Hedge funds watched by Goldman Sachs Group Inc. sold US shares for the seventh day in a row on Monday, with the dollar amount of selling over the past two sessions reaching levels not seen since the firm’s prime broker began recording the data in April 2008.

The outflow occurred as the equities meltdown deteriorated on fears that the Federal Reserve may need to intensify its inflation-fighting effort at the risk of triggering an economic crisis. As equities fell and Treasury rates rose, the fast money raced to double down on bearish bets.

Short sells at Goldman’s hedge-fund customers increased “aggressively,” according to a memo, with broad-based investment strategies – or macro products – such as exchange-traded funds dominating the flows.

“They’re saying the market’s going down further,” said Benjamin Dunn, president of Alpha Theory Advisors, over the phone. “Sentiment is just pretty much in the toilet.”

The equities selloff accelerated after Friday’s higher-than-expected consumer price index crushed any optimism that inflation had peaked. With the Fed set to publish its monetary policy decision on this Wednesday, traders have increased their bets on a 75 basis-point rate hike.

Along with the 2022 devastation, hedge funds have reduced their equity exposure. According to Goldman statistical data, a measure of their risk appetite that includes both bullish and bearish bets, known as gross leverage, is around five-year lows.

The S&P 500 had fallen more than 20% from its January peak as of Monday’s closing, entering a bear market for the second time in two years. As of 11:20 a.m. in New York, the benchmark index had fallen 0.3 percent.

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