After 8 weeks of selling off, American hedge funds bought stocks at the fastest pace since 2021.

On Monday, October 14, financial blogger Tyler Durden published an article stating that recently, both American hedge funds and overall stock market trading volume have significantly increased. The US stock market is experiencing active buying and a market rally, but the market's high valuation is a worrisome issue that could trigger future corrections.

According to Goldman Sachs Prime Brokerage data, hedge funds' net buying volume of individual stocks is the largest since December 2021, with 7 out of 11 sectors being net bought this week. By nominal amount, the medical care, finance, industry, and information technology sectors are leading the way. Fund managers have been net buying American medical care stocks for the third consecutive week, marking the fastest pace in over a year.

For most of the second half of this year, especially since the arbitrage trading collapse in August, US stocks seem to have overcome numerous worries and continued to rise. Last Friday, the S&P 500 index hit its 45th all-time high of the year, the best performance of the 21st century.

Large trading volume in the US stock market, with concerns about overvaluation.

According to Goldman Sachs Prime Brokerage data, after 8 consecutive weeks of selling off, hedge funds' net buying speed of US stocks has reached the fastest level in 4 months. This is mainly due to individual stocks, with the net buy volume of individual stocks hitting the highest level since December 2021, and the long positions to short positions ratio at 1.2 to 1.

However, despite this frenzy of buying, the overall investment level of hedge funds remains relatively low. The total leverage ratio of US long-short equity funds only increased by 0.2 percentage points to 192.4%; the net leverage ratio increased by 1.3 percentage points, reaching only 53.5%; and the long-short ratio increased by 1.5 percentage points to 1.777.

Looking at the data of Goldman Sachs stock sales and trading department again, the buying volume is more prominent. Goldman Sachs trader Matt Kaplan pointed out that thanks to moderate PPI data offsetting the impact of CPI's rise, in the week when the S&P 500 index hit a new high, the market rose widely, and the performance of the S&P 500 equal-weight index outperformed the weighted index by about 40 basis points.Russell Indexrose 2%.

In the U.S. stock market with a large volume of trading and high valuations, Kaplan said:

"The only continuing debate in the bear market is the excessively high valuation."

Durden believes this can be understood, as even Goldman Sachs analyst David Kostin admits that the current forward P/E ratio of the U.S. stock market has reached a "ridiculous" level of 22 times!

Hedge funds' net buying speed of U.S. stocks hit the fastest pace in four months.

The following is detailed statistical data on the U.S. stock market from Goldman Sachs Prime Brokerage last week:

There was a slight net sell-off in indices and macro products like ETFs, mainly driven by short sales. Short positions of ETFs listed in the U.S. increased by 1.3%, mainly concentrated in large-cap stocks and corporate bond ETFs.

Individual stock net buying volume was the highest since December 2021, mainly driven by long positions and short covering. Out of 11 sectors, 7 were net buyers this week. Nominal amounts show that medical care, finance, industry, and information technology sectors led, while real estate, utilities, and consumer staples with high dividend yields were all net sellers.

The information technology sector performed the best this week, also ranking high in net buying volume, mainly driven by long positions with slightly less short covering. The software industry and technology hardware industry saw the most net buying, while the semiconductors and equipment industry saw the most net selling. Despite increased buying recently, U.S. software stocks still maintain a relatively low net position.

Fund managers continued to net buy U.S. medical care stocks for the third consecutive week at the fastest pace in over a year, mainly driven by long positions and short covering.

All sub-sectors were net buyers this week, led by biotechnology, pharmaceuticals, and medical services providers and services industries. The total long to short ratio for pharmaceuticals, biotechnology, and life sciences stocks is now 2.70, reaching the highest level since May, although still at the 12th percentile in the five-year history.

Editor/Lambor