Hedge funds are using Fed's big rate move to buy US tech stocks says Goldman Sachs

Investing.com -- Hedge funds accelerated their purchases of U.S. tech and media stocks at the fastest rate in four months last week, as per a prime brokerage note from Goldman Sachs (NYSE:GS), Reuters reported on Monday. 

This surge was largely driven by expectations of a 50-basis-point interest rate cut by the Federal Reserve.

Lower interest rates are predicted to boost industrial investment by making borrowing cheaper for companies and enhancing consumer spending on technology, potentially increasing stock prices in the sector. 

The Fed's recent rate cut, its first in four years, contributed to a rise in U.S. stock markets, with the S&P 500 closing 1.15% higher on Friday, as recession concerns diminished and investors weighed the benefits of a more relaxed monetary policy.

Hedge funds tripled their long positions in information technology stocks compared to short positions, reflecting optimism that these stocks would increase in value, the report added. 

Buying activity was particularly strong in semiconductor and related equipment companies, which outpaced selling in hardware firms like those producing computers and storage devices.

Hedge funds exited short positions and increased long bets in interactive media and entertainment companies, signaling positive expectations for the sector.

Overall, technology and media now account for nearly one-third of U.S. hedge fund net portfolio exposure, while consumer goods were the most heavily sold, the report added. 

Selling in consumer discretionary stocks, including hotels and restaurants, exceeded buying for the first time in four weeks, marking the largest net selling in this sector in a year.

Gross leverage, which includes total hedge fund borrowing and investments, reached about 278%, among the highest levels observed this year.