Despite many still celebrating the stock market's brilliance in 2024, Wall Street's smart money has already begun shifting to a defensive mode as the calendar turns. According to Goldman Sachs (GS.N) primary brokerage data, over the five trading days from December 27 to January 3, hedge funds were net sellers of US Stocks each day, selling off at the fastest pace in over seven months.

Data indicates that during this period, the stocks most sold by hedge funds were primarily those in Medical Care, Finance, and Industrial sectors, which initially rose due to Donald Trump's re-election. This action was mainly driven by Short Selling, a bearish trade on the market and individual stocks.

Scott Rubner, Goldman Sachs' Global Markets and Tactical Expert, wrote in a report to clients on Tuesday: "Hedge funds typically increase their overall leverage exposure: this process has already begun. We are starting the new year with a significant number of local Short Sell positions."

Fast money investors utilizing short-term trading strategies and leverage have been exiting the stock market after the S&P 500 Index closed 2024 up over 20% for the second consecutive year, benefiting from confidence in lower interest rates, a strong economy, and AI profits.

According to the average forecast from a CNBC market strategist survey, the S&P 500 Index is expected to rise another 12% in 2025, reaching around 6630 points by year-end. However, some investors have become cautious, pointing out that high valuations and inflation could resurface, particularly after Donald Trump's election, which may lead to tariffs on imported goods.

Widely regarded hedge fund manager Dan Niles recently listed Cash as his preferred investment for the first time since 2022. The founder of Niles Investment Management stated that with inflation maintaining at 2.5% to 3%, he believes Cash could be a good safe haven. "The last time I chose Cash was in 2022, when the market ultimately dropped by 19%." Niles said earlier this week, "We will see how this year unfolds. But I think especially at the beginning of the year, if you Hold Cash, the yields on Money Market Funds can be 4%. I don't think that's a bad place to be."