Investing.com -- US markets took a breather last week, with the S&P 500 dipping 0.6%, as investors weighed a softer-than-expected CPI inflation report ahead of the Federal Reserve's upcoming meeting.
Still, according to a report by Goldman Sachs (NYSE:GS), hedge funds (HFs) net bought US equities for the second consecutive week, driven 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, led by increased long positions. ETF shorts listed in the US declined, with notable short covering in large-cap and small-cap equities, corporate bonds, and Asia-Pacific ETFs.
Single stocks made up 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 said in the note.
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 vs. the past year and 20th percentile vs. the past 5 years,” the report reveals.
Energy stocks continued to attract hedge fund buying for the third straight week, supported by a recent surge in crude oil prices.
Materials, in contrast, was the most sold sector, with widespread selling across all subsectors, including Chemicals, Containers & Packaging (NYSE:PKG), and Metals & Mining.
Performance was mixed across major indices, with the Nasdaq 100 gaining 0.73%, the S&P 500 slipping 0.64%, and the Russell 2000 dropping 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.
Moreover, reduced expectations for a Bank of Japan rate hike and positive policy comments from China contributed to the backdrop. However, a sharp unwinding of momentum trades earlier in the week weighed on sentiment before stabilizing.
“We continue to believe momentum wobbles should be bought, namely AI or Power Up America,” Goldman strategists said.
From a flows perspective, long-only funds were net sellers, while hedge funds remained balanced.
Technology, media, and telecom (TMT) and Health Care sectors experienced the bulk of supply, while Communication Services and macro products were bought.
Among weekly winners were mega-cap tech 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, Goldman said.