Never seen this much "hedge fund hesitation" at an all-time-high

Hedge funds cautious

Hedge funds have been turning more cautious on areas that have been sharply in focus in recent months. Not the same "young at heart" spirit anymore.

1. Under the surface there’s been some de-grossing with 5d gross flows at -1.1 sigma. 

2. This comes as momentum performance has been choppy lately and HF performance is fairly neutral MTD (+0.3% and flat for quants).

3. There’s been more selling of various themes and sectors that have previously done well. 

4. Equity L/S net leverage was unchanged this week, but remains at YTD lows. 

2 weeks of de-risking

Morgan Stanley's prime brokerage desk reports that US L/S net leverage is at 54%, representing the 65th %-tile on the longer-term basis. Notably, the current level is materially off peaks seen two weeks prior (~60%). (MS PB)

Hedge funds selling Momentum & Growth stocks

The basket of "12m Momentum" longs have seen some strong and consistent selling in the past 2 weeks with 10d flows hitting a -2z and most negative since March.

Source: JPM PI

Turning negative

The JPM "US Tactical Positioning Monitor" sees the 1 week and 4 week changes turn negative showing a 1 week change of -1.5z and 4 week change of -1.0z.

Source: JPM PI

Shorts

Shorts making a new high.

Source: Goldman

Moving away from hedge funds and to broader sentiment

Still not super-stretched

The GS sentiment & positioning indicator is still not at extreme extremes...

Source: Goldman

Extremely neutral

BofA Bull & Bear Indicator at 5.9.

Source: BofA

Barry's bear boot camp

Barry Bannister sticking to his recent bearish call seeing a -10% S&P 500 correction in 2Q-3Q24, due to:

1. Sticky (and slightly higher) inflation 2H24, starting early 3Q24E

2. No Fed rate cuts in 2024, despite sluggish cyclical economic growth

3. S&P 500 P/E to decline ~2 multiples (about 500 points) by 3Q 2024E

We are bringing this up as evidence that there are still bears out there on the street.

Pretty incredible

"While the S&P 500's price has been making new all-time highs this week, its cumulative advance/decline line has yet to get there and is trending slightly lower. Shorter-term, it's pretty incredible to see the S&P's 10-day advance/decline line near oversold territory even though price has rallied."

Source: Bespoke

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