Hedge funds caught in bigger squeeze than 2021 meme stock frenzy
Business
In January 2021 hedge funds quickly withdrew negative holdings, Goldman Sachs study
(Reuters) - Hedge funds betting against stocks abandoned their positions this week at the highest rate since 2015 faster than the pace at which they left the same stock craze two years prior, according to a research study from Goldman Sachs.
Hedge funds were caught off guard by the sharp rally in stocks on February 2 after the US Federal Reserve slowed the pace of interest rate hikes and markets anticipated that rates would peak soon, according to the latest short squeeze, which suggests that stock prices rose so much that bearish bets became too expensive to hold.
In January 2021 when retail traders banded together to drive short sellers out of companies including videogame retailer Gamestop and movie theater operator AMC Entertainment Holdings, hedge funds quickly withdrew negative holdings, according to a Goldman report.
AMC and GME are currently trading above their prices from January 15, 2021 after a two-year period of price volatility.
The short squeeze last week came after a post-Fed rise. The tech-heavy Nasdaq increased by 3.25 percent on Thursday marking its largest one-day gain in more than two months. Meta Platforms, the parent company of Facebook, and Align Technology, a provider of orthodontics, both had their shares rise by over 20 percent.
Even yet the major stock indices continued to rise through Friday, topped by Nasdaq, which had increased by around 14 percent since the year's beginning. According to Goldman Sachs the market exposure of fundamental long-short hedge funds contributed to their gain of 3.79 percent in January. Algorithmic trading-based systematic long-short funds decreased by 0.50 percent.
According to the Goldman report, industrial and information technology companies were the subject of hedge funds' greatest short bets.
Since the beginning of this year rises in the shares of so-called meme stocks have also been fueled by some investors' resurgent risk appetite though many experts are skeptical the recent advances will endure.
