Hedge Funds Dump Stocks, Ramp Up Bearish Bets Ahead of Trump's Tariff Bombshell
Global hedge funds shed stocks and ramped up short positions in the week leading up to President Trump's announcement of sweeping tariffs, Goldman Sachs reported.
After Trump imposed tariffs on Canada, Mexico, and China over the weekend, global markets tumbled, kicking off a potential trade war with international economic implications.
Goldman Sachs' Friday note revealed that hedge funds sold stock holdings across all geographical regions except developed Asian markets. The divestment was the most significant since August when a stock market meltdown, initiated by the unwinding of yen carry trades, spilled over to US tech stocks.
Funds also bet against all sectors, with industrials, consumer discretionary, energy, and communications services equities facing the heaviest selling pressure. The number of short positions against industrial stocks nearly doubled the number of longs wagering on an upswing.
Only real estate stocks attracted positive bets from hedge funds, with steady purchases for four consecutive weeks, the fastest pace in two months. Residential, retail, and healthcare real estate were among the favored subsectors.
"Real estate often performs well in inflationary environments as property values and rents tend to rise with inflation," said Bruno Schneller, managing director at Erlen Capital Management. "If trade wars lead to higher import costs and broader inflationary pressures (via tariffs), real estate becomes an even more alluring hedge against eroding purchasing power."