Hedge funds exit bearish positions at fastest pace since 2015

According to a Goldman Sachs research note, the Londonon Reuters-backed funds that were betting against stocks at the fastest pace since 2015 have overtaken the speed of exodus from the meme stock frenzy two years ago.

According to the Goldman note seen by Reuters, the speed at which hedge funds exited bearish positions exceeded that seen in January 2021 when retail traders worked in concert to push shortsellers out of stocks, such as the videogame retailer Gamestop and movie theatre operator AMC Entertainment Holdings.

The 2021 buying frenzy started on the social media site Reddit, and at-home traders used retail trading platforms such as Robinhood to lift the price of heavily shorted stocks such as Gamestop. This forced many shortsellers out of positions and in some cases returned money to their investors.

The post-Fed rally followed a short-squeeze last week. The tech-heavy Nasdaq surged by 3.25% on Thursday, its biggest one-day jump in over two months, led by 20% surges in the Facebook parent company, Align Technology, and the tech-heavy Nasdaq.

It came a day before a sharp selloff on Friday when stronger than expected U.S. jobs data sparked a selloff in world stocks.

Friday's strong U.S. jobs report renewed concerns that the Fed may have to stay aggressive in its monetary tightening to tame inflation, as stocks of the world fell 0.7%.

The Goldman note said that the largest short positions held by hedge funds were in industrials and information technology companies. It added that hedge funds exited many long positions in Asian developing markets and Chinese equities.

After stuttering recoveries during a volatile two years, AMC and GME are trading above their price levels of Jan. 15, 2021, just before the meme stock frenzy began.

Since the start of this year, there has been a surge in the shares of meme stocks, though many analysts are sceptical about the recent moves.