Hedge funds sell tech stocks at fastest pace in two years as cracks appear within US equities

Behind the record highs in the indices, hedge funds are exiting tech stocks at the fastest pace in two years.

Last week (ending April 25), the S&P 500 and Nasdaq both rose, with the Nasdaq 100 (NDX) up 2% for the week. However, according to Goldman Sachs trading desk data, this rally was far from a broad-based bull market.

On Friday, the S&P 500 hit an all-time high, yet 324 constituent stocks closed lower that day, with a net breadth reading of -148—a record for the second worst market breadth on a high day, only behind October 2025, when 80% of S&P constituents fell on a record day.

Beneath the surface prosperity, clear divisions have emerged within the market.

Hedge Funds Undergo Major Deleveraging, Tech Stock Sell-off Hits Nearly Two-Year High

Goldman Sachs prime brokerage’s weekly report shows total leverage among US long/short hedge funds fell 4.6% last week, with US equities seeing the largest nominal deleveraging in seven months (since September 2025), primarily driven by risk unwinding on individual stocks.

US equities have now seen net selling from hedge funds for the second consecutive week—nine out of the last ten weeks have been net selling, almost entirely from long unwinding. Net selling was observed in nine out of eleven sectors.

The most notable is the Information Technology sector: Last week, single-week deleveraging in this sector was the largest since July 2024 and the third largest in the past five years. Specifically, the ratio of long sales to short covering was 1.9:1, with almost all sub-sectors undergoing deleveraging. Ranked by nominal value: software (long sales > short covering), semiconductors and semiconductor equipment (long sales), tech hardware (short covering > long sales), and communication equipment (long sales > short covering).

What’s concerning is that despite this week’s significant deleveraging, total exposure of the Information Technology sector still makes up 20.6% of US equities market cap—at the 92nd percentile for the past year and the 98th percentile for the past five years. Goldman Sachs noted this means "if tech stocks start falling, there is still a long way down."

Consumer Discretionary Stocks Face Seven Consecutive Weeks of Selling, Retail Under Pressure

The Consumer Discretionary sector is also in a tough position. Hedge funds have posted net sales in this sector for seven consecutive weeks, with last week’s sell speed the fastest in ten weeks (-2.1 standard deviations, based on the past year), again almost solely from long unwinding.

Leading declines among sub-sectors were retail, hotels/restaurants/leisure, textiles/apparel, and luxury goods.

From a position perspective, Consumer Discretionary currently accounts for 11.5%/13.2% of hedge fund total/net exposure to US equities, ranking at the 14th/7th percentile for the past year, and the 3rd/29th percentile for the past five years—meaning holdings have been cut to historically low ranges.

Goldman Sachs’s trading desk also pointed out that the retail sector underperformed the market for four straight days last week, with a total relative gap of -350 basis points. "There’s no obvious single cause; it’s more the market’s growing concerns over oil prices, input costs, and waning fiscal stimulus effects, with focus shifting to the second half of the year."

Divergence Between Asset Managers and Hedge Funds, ETF Short Covering Continues

In contrast to hedge funds’ caution, data from Goldman Sachs equity sales desk shows asset managers are increasing positions in some tech segments, showing signs of "re-risking."

On macro products (indexes and ETFs combined), last week saw a slight net buy (+0.1 standard deviations, annual baseline), driven by moderate long buying and short covering at a ratio of 2.7:1. US-listed ETF short interest fell another 1.4% last week and is down 21.5% month-to-date, with covering concentrated in credit, information technology, and small cap ETFs.

AI Narrative Supports the Nasdaq, But This Week’s Earnings Are the Real Test

Though hedge funds are reducing exposure, the market is still digesting positive AI data points. Goldman Sachs’s trading desk notes that densely packed Google partnership announcements, as well as strong earnings from Intel (INTC), Texas Instruments (TXN), Lam Research (LRCX), and Hynix, have revived confidence in semiconductor and AI trades. The Philadelphia Semiconductor Index (SOX) jumped 9% last week, pushing its RSI to 85. Intel’s better-than-expected results and guidance boosted AMD, ARM, Qualcomm (QCOM), among others, all surging over 10% in a single day.

But the real test comes this week—Meta, Microsoft (MSFT), Google (GOOGL), and Amazon (AMZN) will all report earnings after the bell on Wednesday. With hedge funds having already cut their positions significantly, the results will directly determine whether tech stocks can hold their current gains.