Hedge funds sold tech stocks at near-record pace ahead of 7% chip rally
Technology became the sector with the largest net sales in the U.S. and globally
By November 6, hedge funds were selling technology stocks at a pace close to the highest since 2016. On November 9, the semiconductor index rose by 6.9%.
Against this backdrop, U.S. long/short hedge funds reduced gross leverage by 8.7 percentage points—to 207.5%. Gross leverage accounts for both long and short positions relative to the fund's capital.
Net leverage declined by 3.7 points, to 43.3%. By November 6, funds had already become net buyers: they primarily closed short positions on indices and exchange-traded funds. The buyback of such positions can quickly push quotes upward even without increased confidence in the stocks themselves.
The rally affected a broad range of chip manufacturer stocks. On the same day, the iShares Semiconductor ETF rose by 7.49% and closed at $146.76, while the VanEck Semiconductor ETF gained 5.05%. The Nasdaq-100 had previously experienced its deepest decline since the pandemic, losing $2.3 trillion in market value in a single session.
Strategists differ in their assessments of whether the sell-off will continue. Dubravko Lakos-Bujas of JPMorgan called the event largely a reduction in leveraged positions and maintained the year-end target for the S&P 500. Michael Wilson of Morgan Stanley believes the correction is nearing its end, while Citigroup strategists downgraded U.S. stocks and the global technology sector to neutral.
The next test for the market will be the U.S. October consumer inflation report. Stock prices may decline again if chip manufacturer forecasts or artificial intelligence spending plans deteriorate.
