The expectation of a Fed rate cut collapsed, "smart money" continues to short the stock market

Hedge funds, considered as "smart money," are selling global stocks at the fastest pace in three months, increasing bearish bets on the stock market.

According to Goldman Sachs data, professionals net sold global stocks for the second consecutive week last week, driven almost entirely by short selling. This is also the largest selling pressure from hedge funds since mid-January.

Goldman Sachs pointed out that non-essential consumer stocks were one of the worst-performing sectors last week with significant selling pressure. Hedge fund managers are reducing long positions in this industry daily and shorting ETFs focused on retail.

Similar trends are shown in Bank of America's client data, with hedge fund clients selling stocks for the fifth consecutive week last week, exiting stocks of small, medium, and large companies.

Currently, investors are reassessing the Fed's interest rate cut path. The market expects 2-3 rate cuts this year, even suggesting that the first rate cut of the year may not occur until September, a stark contrast to earlier this year when traders once expected as many as seven rate cuts by 2024.

With the collapse of rate cut expectations, the U.S. stock market is showing a clear trend of "unable to rise." For example, the Dow Jones Industrial Average fell 2.3% last week, marking its worst weekly performance since March 2023. The S&P 500 Index fell nearly 1% last week, the largest weekly decline since earlier January.

A recent analysis article on the Wall Street News website pointed out that this week will be a crucial test for the U.S. stock market: first, whether overheated inflation data will once again stifle hopes of rate cuts; second, as the first quarter earnings season for U.S. stocks kicks off, whether companies' profitability and prospects can support the current high valuations