Hedge funds bail from stocks as Powell, COVID roil markets
BNN Bloomberg
Add professional traders to the ranks of investors bailing from stocks as anxiety over the omicron variant and monetary policy roil markets.
Add professional traders to the ranks of investors bailing from stocks as anxiety over the omicron variant and monetary policy roil markets.
Hedge funds, which use borrowed money to amplify returns, have gone risk-off in a major way just as the S&P 500 endured its biggest two-day rout since October 2020. Net leverage, a measure of industry risk appetite that takes into account long versus short positions, fell to a one-year low this week, according to data compiled by Goldman Sachs Group Inc.’s prime brokerage.
The move is in contrast to retail traders, who renewed their manic dip buying after Tuesday’s rout, pushing stocks higher by almost 2 per cent earlier in Wednesday’s session. Then Jerome Powell reinforced his message that the Federal Reserve would keep inflation in check and officials confirmed the first case of the omicron variant in the U.S. That sparked an afternoon selloff that left the S&P 500 with its biggest reversal since April 2020.
Few corners of the market were spared, as small caps gave up a 2.5 per cent surge to end lower by more than 2 per cent. Bitcoin dropped below US$57,000, oil hit US$65 a barrel and Treasuries rallied on demand for safety. The S&P 500 is now down 3.1 per cent in two sessions and more than 4 per cent from its last record on Nov. 18.
The reasons for the mass exodus are varied. Some managers pointed to tax-loss harvesting ahead of the end of the year, while others suggested investors were rushing to lock in gains that topped 20 per cent. Front and center remains the change in tone from the Fed.