Hedge funds capitulate: Net purchases in US stocks for fifth consecutive week

According to a Goldman Sachs note, most institutional funds missed the rally and are now facing a key question: should they chase the growth or wait for a correction? A separate report — the must-read Weekly Rundown, which covers key developments across all of Goldman’s trading divisions, including the crucial Prime Brokerage — seems to already answer that question: after selling and shorting throughout April (when retail investors were buying anything not nailed down), hedge funds have now switched to panic buying mode, with net inflows into U.S. equities for the fifth consecutive week, driven by risk-on flows where long buys outpaced shorts by about 3 to 1.

The growing capitulation to chasing bullish momentum is most clearly seen in U.S. Fundamental Long/Short gross leverage, which hit a record 215% just a few weeks ago and fell –2.5% last week — the largest weekly drop since early April — to 210.6% (still in the 97th percentile for the past 3 years). Meanwhile, U.S. Fundamental L/S net leverage rose for a fourth straight week, up +0.9% to 51.2% (38th percentile, 3-year range). Equally important, the Long/Short ratio — which was near a bottom two months ago (and which we saw as a buying opportunity) — rose +1.5% to 1.642 (8th percentile for 3 years).

A few additional details:

Macro Products (Indices + ETFs) accounted for 23% of total net buying (+0.4 SD), driven by short covering and long buying. After three consecutive weeks of covering, U.S. ETF shorts rose by +0.2% this week (still –15.7% month-over-month), led by shorts in Large Cap Equity, Industrials, and Corporate Bond ETFs, partially offset by covering in Tech ETFs.

Single Stocks were net bought for a fifth consecutive week and made up 77% of total net buying (+1.6 SD), led by long purchases over short sales (2.2 to 1). 8 of the 11 U.S. sectors saw net buying, led by Information Tech, Health Care, Industrials, and Energy, while Communication Services, Materials, and Utilities were net sold.

Industrials was the most net-bought sector in the U.S. this week in SD terms, posting its largest increase in 7+ months (+1.7 SD), led by long buys over shorts (3.7 to 1). Net buying in the U.S. Industrials segment was the largest in nearly four years (99th percentile for 5 years) — nearly all subsectors were net bought, led by Ground Transportation, Aerospace & Defense, Trading Companies & Distributors, and Professional Services. Despite the activity, net positioning remains relatively low compared to last year, with net exposure (% of U.S. portfolio) and the Long/Short ratio in the 16th and 34th percentiles, respectively.

Health Care – hedge funds net bought U.S. health stocks for the sixth straight week (+1.6 SD), mainly through long buying as short flow remained relatively quiet. The most bought subsectors were Biotech, Pharmaceuticals, and HC Providers & Services, slightly offset by HC Equipment & Supplies and Life Sciences Tools & Services. The Long/Short ratio for U.S. Biotech now stands at 3.83 (vs. 2.90 at the start of 2025), at 2-year highs and in the 86th percentile over a 5-year history (+0.4 SD), driven by short covering and long accumulation.

Quick Detour: Why the VIX Dropped Below 17 for the First Time Since February

As Paul Leyzerovich from Goldman explains, while U.S. equities rallied last week, volatility continued to compress (VIX –1.7 WoW), and the VIX futures curve steepened.

Systematic selling in SPX options and VIX futures delivery by institutional players both contributed: according to CFTC data from April 22 to May 27, institutional positioning in VIX Index futures declined over five consecutive weeks, by a total of $14.3M vega, driven by new shorts (+$26.3M vega). Long positions remained moderate.

Looking Ahead to Next Week

With a busy week ahead (including the Trump–Xi meeting on June 9, U.S. CPI on June 11, and bond auctions), and several political catalysts that could shake confidence, hedging with UXM5 becomes attractive before expiry (June 20).

Special Note for Equity Traders

At Goldman’s equities trading desk, flows are slightly skewed — hedge funds are showing more bullish enthusiasm than long-only institutional players, who continue shorting even as the S&P approaches historic highs. As Matt Kaplan from Goldman writes, long-only players ended with –$3B in net sales, while hedge funds were nearly flat.

Further on this: this week shows a lot of “wrong” behavior — it’s the 7th worst week in 5 years for the GS HF VIP basket vs. GS Most Short basket: –8%.

Industrials & Discretionary lead the sell skew;
Large-cap Biotech, Communication Services, and top tech lead the buy skew.
Goldman tech trader Peter Callahan emphasized this in his weekly TMT wrap, noting that despite good news (two consecutive weeks of +2% for Nasdaq, up ~30% from the bottom and near ATH), the less positive note is that the top performers were precisely from our Most Short baskets, followed by the TMT 12-month laggards (+7% weekly), as investors try to follow and manage long exposure.

Topics for Next Week

The implied move for the S&P by next Friday (13th) is 1.91%. It will be a week full of conferences – Goldman’s Health Care (Mon–Wed), and investors are eyeing several investor days: AON (Mon), CGNX, FTV, DE, AAON (Tue), DV (Wed), ESTA, ADP, BLK, CAH (Thu). Highlights include GenAI events from AAPL, CSCO, NVDA, AMD, ANET. According to Goldman, investors are regaining confidence in infrastructure spending (positive tone from AVGO/Hock for CY26), but there’s still a notable debate around the “application” layers (e.g., when this capex will start impacting performance/revenues – see this week’s WSJ story: “Meta Aims to Fully Automate Ad Creation Using AI”). Key macro event is the CPI on Wednesday, and the Fed enters media blackout ahead of its June 18 meeting. Finally, the Trump–Xi meeting is scheduled for June 9.