US Market Overview

US markets took a breather last week, with the S&P 500 dipping 0.6% as investors assessed a softer-than-expected CPI inflation report ahead of the Federal Reserve's meeting.

According to a report by Goldman Sachs, hedge funds (HFs) net bought US equities for the second consecutive week, fueled by risk-on sentiment. Long positions outpaced short sales by a ratio of 1.4 to 1.

Macro (BCBA:BMAm) products, including indices and exchange-traded funds (ETFs), accounted for the majority of net buying, driven by increased long positions. ETF shorts in the US declined, featuring notable short covering in large-cap and small-cap equities, corporate bonds, and Asia-Pacific ETFs.

Single stocks contributed to the remainder of net buying activity, also led by long positions.

Financials, Consumer Discretionary, Communication Services, Energy, and Staples sectors saw the highest levels of net buying, while Materials, Information Technology, and Health Care were net sold.

“Financials was the most net bought sector on the week amid the GS US Financials conference, driven mainly by long buys,” Goldman noted. Substantial buying occurred in Insurance, Consumer Finance, and Capital Markets, while Financial Services and banks experienced modest selling.

“US Financials long/short ratio now stands at 1.74, in the 89th percentile compared to the past year and the 20th percentile compared to the past 5 years,” the report revealed.

Energy stocks attracted hedge fund buying for the third consecutive week, supported by a recent surge in crude oil prices.

In contrast, Materials was the most sold sector, with widespread selling across all subsectors, including Chemicals, Containers & Packaging, and Metals & Mining.

Performance varied across major indices: the Nasdaq 100 gained 0.73%, the S&P 500 slipped 0.64%, and the Russell 2000 dropped 2.6%. Encouraging macroeconomic signals, including CPI and PPI reports and dovish moves from central banks such as the SNB, BoC, and ECB, provided some support.

Additionally, reduced expectations for a Bank of Japan rate hike and positive policy comments from China contributed positively. However, a sharp unwinding of momentum trades earlier in the week dampened sentiment before stabilizing.

Goldman strategists maintained that momentum wobbles should be bought, particularly in areas like AI or Power Up America.

From a flows perspective, long-only funds were net sellers, while hedge funds remained balanced. Technology, media, and telecom (TMT) and Health Care sectors saw the bulk of supply, while Communication Services and macro products were bought.

Among weekly winners were mega-cap tech stocks and China ADRs, while Bitcoin-sensitive stocks, biotech, and software lagged. With the FOMC meeting on Wednesday, market engagement and liquidity are expected to slow in the coming days, according to Goldman.