While U.S. economic data releases bullish signals, hedge funds are voting with their feet.

According to Goldman Sachs Prime Book, last week there was a net sell of consumer stocks in US stocks, with long positions selling more than short positions buying, resulting in a nominal deleveraging of consumer stocks. The nominal deleveraging - the sum of long positions selling and short positions buying - was the second highest record in the past year, ranking in the 96th percentile of the past five years. Hedge funds are also cautious about restaurant stocks.

Hedge fund's massive sell-off indicates that they still doubt the resilience of U.S. consumption. However, from the recently released economic data, there is currently no sign of a decline in consumption.

Earlier data showed that U.S. July retail sales increased by 1% compared with the previous month, exceeding expectations and reaching the highest level since the beginning of 2023. In August, the University of Michigan's consumer confidence index rose for the first time in five months, with inflation expectations remaining stable.

The latest financial report from global retail giants also released bullish signals.$Walmart (WMT.US)$In the second quarter, both revenue and net income exceeded expectations, and the annual performance guidance was raised. The world's largest "buy now, pay later" service provider said that there is no sign of a reduction in spending by US consumers.

Morgan Stanley analyst Sarah Wolfe wrote in a recent report:

We have always maintained that due to tight monetary policy and the more widespread normalization of consumer behavior, consumer spending will decline slightly in 2024. However, we believe that the fundamental driving factors of consumption still support stable spending; it will neither accelerate nor decline. July's retail sales data confirms that purchasing power still exists.

Previously, Goldman Sachs stated that the performance of consumer sector companies was consistent with macro data.$S&P 500 Index (.SPX.US)$Among them, 60% of consumer companies' second quarter performance exceeded expectations, indicating that US consumption still has a certain resilience. Goldman Sachs's developed consumer index - the US Consumer Dashboard - also shows that the US consumer situation is currently very healthy.

Apollo Asset also believes that U.S. consumption is still strong:

... Retail sales are strong, unemployment claims are falling, restaurant bookings are strong, aviation travel is strong, hotel occupancy rates are high, bank credit growth is accelerating, bankruptcy filings are trending downward, credit card consumption is stable, Broadway show attendance and box office revenue are strong.

The latest data on retail spending and unemployment benefits has eased some people's concerns about the U.S. economy, while some sectors are still constrained by rising interest rates. July retail sales recorded the largest increase since early 2023, with retail sales generally rising, and Walmart's upward adjustment of its performance guidance (a growth barometer) also indicates that consumers are becoming more cautious but are still spending.

Betting on "Fed rate cuts" and "Trump trades", energy stocks have become "hot potatoes".

Goldman Sachs's latest report on Monday showed that hedge funds reduced industrial stocks at the fastest rate since December last year, while continuously increasing energy stocks for the fourth week, including oil, natural gas and consumable fuels, as well as stocks of energy equipment and supply companies. Moreover, the proportion of energy stocks they currently hold has reached a new high this year.

Goldman Sachs's report last Friday showed that hedge funds sold the highest amount of industrial stocks in the past five years last week, despite a certain degree of buying in air transportation and defense stocks, but hedge funds focused on stocks of companies providing professional services, ground transportation, industrial machinery and passenger air transportation business.

The logic behind this adjustment is, on the one hand, they predict that US interest rates may fall. Rate cuts usually stimulate economic growth, and the energy industry may benefit from economic recovery, making it a favorite of hedge funds. Paul O'Neill, chief investment officer of wealth management firm Bentley Reid, said: "If the Fed successfully implements a soft landing, global economic growth will be better than expected. This may be the reason why these traders are changing their strategies."

Therefore, considering the prospects of interest rate cuts, traders are closely watching Fed Chairman Powell's speech on Friday at Jackson Hole for clues about the scale of interest rate cuts in the next few months.

On the other hand, hedge funds are betting on the "Trump trade". Some media reported in late July that these hedge funds believe that if Trump wins, the regulation of the energy industry may be relaxed, which will be beneficial to the development of energy companies. However, on the other hand, the stock prices of some European auto manufacturers have been negatively affected due to the expectation that Trump may be re-elected, as they may face US tariffs on imported cars.

On the other hand, hedge funds are betting on the "Trump trade". Some media reports in late July revealed that these hedge funds believed that if Trump is elected, the regulation of the energy industry may be relaxed, which would be beneficial for the development of energy companies. However, on the other hand, some European auto manufacturers' stocks have been negatively affected by the expectation that Trump may be re-elected, as they may face tariffs on foreign imported cars imposed by the USA.

Editor/Emily