Hedge Funds Maintain Bearish Stance on Financial Stocks Amid Job Cuts and Slowdown in Dealmaking

Hedge funds have continued their bearish outlook on banking and financial stocks, with sustained bets against these sectors throughout the week ending last Friday, according to a report from Reuters referencing a note from Goldman Sachs’ prime brokerage unit.

This strategy comes as the financial sector grapples with ongoing job cuts and a significant slowdown in dealmaking activity. The report highlights that financial stocks were the most sold sector last week, marking the fourth consecutive week of net selling in banks, insurance firms, publicly traded property trusts, and capital markets companies, which facilitate bond and stock transactions.

Despite this ongoing trend of selling, European financial stocks have shown some resilience. For instance, Europe’s STOXX 600 banking index gained 1.7% since August 26, while the Dow Jones banking index closed up over 2% for the week prior to the U.S. holiday on Monday. This indicates a mixed performance amid the broader sector-wide decline.

The Goldman Sachs report further emphasized that financial stocks have been sold off in six out of the last seven weeks, with the selling pressure being evident on a global scale. North America experienced the largest net sales in absolute terms, followed by developing markets in Asia and Europe.

Even as the total value of global deals has increased by 20%, the number of mergers and acquisitions has dropped by 25% for the year through June 25, according to data from LSEG. Hedge funds, however, have displayed more cautious optimism within the consumer finance sector, engaging in modest net buying, as highlighted by Goldman Sachs. This shift suggests that while hedge funds remain wary of the broader financial sector, they are selectively targeting areas with more attractive growth potential.