Mithra Warrier, Managing Director, Global Head of Financing Sales at Scotiabank, appeared on Bloomberg's The Close to discuss how investors are contending with resilient equity markets amid persistent macroeconomic uncertainty. She noted that technology stocks were instrumental in lifting equities to higher closes, even as new data indicated continued inflationary pressures.
Separately, Goldman Sachs' prime brokerage data suggests that hedge funds started July defensively, significantly reducing their exposure to the technology sector, particularly the "Magnificent Seven" stocks, at a record pace ahead of the Russell rebalance. This action was described as risk managers proactively de-risking before expected market volatility, rather than a bearish macroeconomic call on US equities. Hedge funds are generally not abandoning risk but are shifting away from highly concentrated, crowded positions, especially in single-stock technology longs.
While the AI trade remains active, it has evolved into a stock-picker's market, with crowded ownership in semiconductors, memory, and hardware making the path less forgiving. Investors, including Goldman's clients, remain modestly bullish on risky assets, preferring developed-market equities over credit, indicating a desire for upside with a margin for potential market wobbles. Some strong trades in Asia, such as those in Japan and Korea, are now being harvested.
Further reports indicate that hedge funds became the most bearish on the yen since 2007 due to its near four-decade low, making carry trades attractive. Concerns also persist about hedge fund crowding potentially amplifying market losses during a crisis, especially given the rapid unwinding of crowded trades and high concentration risks, particularly in semiconductor stocks that have driven AI-related gains.
