Hedge fund short have hit a 4 month high on financial and banking equities

In the week of January 11, global hedge funds began the highest net selling of U.S. financial equities in 16 weeks, coinciding with the start of earnings season, according to a Goldman Sachs letter to clients.

Prior to the publication of bank earnings on Friday, hedge funds reportedly sold off their long holdings and increased their short bets on the stock prices of banks, insurance firms, and financial intermediaries, according to a Jan. 12 Goldman note seen by Reuters on Monday.

The report, which documented trade activity from Friday, January 5 to Thursday, January 11, was prepared by Goldman's prime brokerage, which provides services to hedge funds.

U.S. banks' stock prices dropped on Friday following the release of their fourth-quarter earnings results, which were marred by unusual charges and layoffs. There were also indications that the income boost from high interest rates was beginning to taper off and that some consumer loans were beginning to default.

While Wells Fargo achieved a greater fourth-quarter profit but cautioned that its net interest income might decline 7% to 9% this year, sending its shares down more than 3% on Friday, JPMorgan Chase and Bank of America reported lower fourth-quarter profits.

Based on the Goldman report, equities in finance, consumer firms that produce goods that people purchase but may not necessarily require, and healthcare were sold.

According to the bank, shorting activity centred on the banking sector was especially high. It went on to say that this also applied to the real estate, leisure and tourism sectors.

(Sources: reuters.com)