Hedge funds panic-buying US stocks, net purchases hit a nearly one-year high last week, Muddy Waters founder: "Just buy with your eyes closed!"

Hedge funds bought US stocks at the fastest pace in 4 months last week. After 8 weeks of continuous selling, hedge funds have been buying US stocks for the second consecutive week.

According to a report from Goldman Sachs last week, US stocks not only saw a second consecutive week of buying, but also experienced the largest net buying volume since December 23, 1993, mainly driven by long buying and minor short covering (with a ratio of about 3.3:1).

Market sentiment seems to be changing, with optimism towards US stocks prevailing. On the 21st, Carson Block, the founder of Muddy Waters known for his bearish views, said in an interview with Bloomberg TV:

"Maybe you don't need to think too much, just close your eyes and buy the Mag7."

Hedge funds continue to net buy information technology stocks for the third consecutive week, Muddy Waters founder: "Close your eyes and buy"!

According to a recent report from Goldman Sachs, hedge funds have been net buying US information technology stocks for the third consecutive week, at the fastest pace in 5 months, thanks to accelerated short covering and continued long buying.

Almost all sub-industries are favored, with sectors such as semiconductors, technology hardware, and communication equipment being particularly sought after. Investor sentiment in the US information technology sector has significantly improved. Goldman Sachs stated:

The US information technology long/short ratio is currently 1.73, higher than the 5-year low of 1.55 a month ago.

The information technology sector accounts for 16.1% of the overall US net exposure, up from 14.3% a month ago, the lowest point in the past year.

Goldman Sachs mentioned that individual stocks have been net bought for the third consecutive week, mainly driven by short covering and long buying, with a ratio of about 1.2:1. Financials, information technology, industrials, and utilities are the industries with the most nominal net buying, while communication services, energy, consumer goods, and real estate are the most net sold industries.

Muddy Waters' Block believes that in the context of a strong labor market, the US stock market will continue to benefit from capital inflows. He is very optimistic about the future performance of the Mag7.

He also mentioned that looking back, his investment strategy as a short seller "seems more like going long on the S&P 500 index."

Furthermore, hedge funds' enthusiasm for financial stocks remains high. According to Goldman Sachs data, hedge funds have been net buying financial stocks for the third consecutive week, at the fastest pace since February 2021; the duration is also relatively long, with 8 consecutive trading days of net buying.

Indices and ETFs account for over 70% of the overall net buying, reaching a new high since early June.

Sector rotation accelerates, risk unwinding drives utilities sector, Russell index outperforms

It is worth noting that although utilities were one of the best-performing sectors this week with the most net buying, the sector's fund flows were driven by large-scale risk unwinding, with short covering exceeding long buying by 2.5 times, and continuous selling for 6 weeks.

Matthew Kaplan, a trader at Goldman Sachs' equity sales trading department, pointed out that the Russell index has outperformed the S&P 500 index and the Nasdaq index significantly in the past week, as investors begin to shift their focus beyond the TMT (technology, media, and telecommunications) sectorKaplan gives four reasons to explain this phenomenon:

1. Profit-taking by tech giants: Due to the significant increase in the stock prices of tech giants over the past year (averaging a 138% increase since December 22), investors have started to take profits.
2. Improved economic outlook: The economy has performed better than expected, boosting investor confidence.
3. Recovery in traditional economic sectors: Factors such as artificial intelligence have driven the recovery of traditional industries (such as industrial and utilities).
4. Stable performance in the financial industry: The financial industry's third-quarter financial reports have been strong, injecting a dose of confidence into the market.

Goldman Sachs further points out that last week, the industrial and energy sectors remained relatively hot, with interest rate-sensitive stocks performing particularly well. Construction and utilities sectors rose by 4% and 3% respectively. However, with the easing of tensions in the Middle East, the energy sector experienced a pullback, with the XOP index falling by 4%.

Looking ahead, Goldman Sachs states that corporations remain the largest net buyers of US stocks this year, with the corporate buyback window expected to open on October 28. So far this year, companies have authorized stock buybacks worth $1 trillion, making it the largest authorized amount in history