Largest-scale sell-off in four months! Hedge funds aggressively dumping US tech stocks

US stocks got off to a bad start in 2024, with technology stocks being sold off like crazy. Hedge funds dumped IT stocks at the fastest pace in four months, and the "Big Seven Sisters" of the US stock market saw net selling for the fourth consecutive week, mostly driven by bearish sentiment.

The first week of the year was particularly difficult for US tech stocks. The Nasdaq 100 index fell for six consecutive days, dropping by about 310 points, marking the first weekly decline since late October. This was mainly due to volatility in interest rate expectations. Over the past 5 trading days, the yield on 10-year US Treasury bonds rose by about 17 basis points, causing investors who held tech stocks for the long term to flee.

Goldman Sachs pointed out in its weekly hedge fund flow report:

Hedge funds sold off US stocks significantly this week, with almost all sub-sectors of the technology industry experiencing net selling. Software, semiconductors, and semiconductor equipment were hit the hardest.

Specifically, the information technology (IT) sector suffered the most severe selling, with net selling for the third consecutive week (7 out of the past 8 weeks saw selling), and the scale of selling reached its highest level since mid-October last year.

The "Big Seven Sisters" of the US stock market also had a tough time, with net selling for the fourth consecutive week, and it was mostly driven by bearish sentiment.

Currently, the "Big Seven Sisters" stocks account for a total of 17.0% of the net exposure of US stocks in institutional trading books, lower than the 18.1% in mid-December. This is the lowest level in nearly 6 months, but still in the 88th percentile over the past five years.

As for the reasons for the recent decline in US stocks, Goldman Sachs stated in the report:

Although there has been significant volatility in the stock market since the beginning of the year, most of the decline is not due to a significant change in sentiment towards the technology industry, but mainly due to volatility in interest rate expectations (rising US 10-year Treasury bond yields and a decreased possibility of rate cuts in March) and some technical factors (fund rotation, risk control, etc.). However, investors were concerned last week about the lack of support for tech stocks during the decline, indicating that there is still pressure for adjustment.

Looking ahead, Goldman Sachs believes that there will be a 10% pullback in US tech stocks this year, and the volatility will increase:

The return of the Nasdaq 100 index will be closer to the historical average, which means that there will be a "10% pullback" in annual returns this year, approaching the average return level of the past 20 years. The volatility may also intensify, and it won't be surprising to see several "10% pullbacks".

For investors, the two major themes to focus on will be "rate cuts and AI". Although market sentiment may sometimes overestimate or underestimate these two aspects, it creates a favorable environment for trading (the current market may be overestimating). Next week, in addition to the US December CPI index, the market will closely watch the "Electronic Spring Festival Gala" CES 2024, which will be held in Las Vegas. AI may become the focus, and tech giants such as Qualcomm, NVIDIA, AMD, and Intel will all make appearances.