Hedge fund selling is accelerating: Citi

Investing.com -- Long-only managers increased their exposure this past week, with the largest additions in tech, industrials, and financials, Citi said in a Tuesday report. On the other hand, they reduced their holdings in energy, health care, and real estate.

“Energy is the only sector to have seen outflows from long-only managers over the last 2 months, while financials, tech, and consumer discretionary have seen the most inflows,” Citi strategists said.

Meanwhile, hedge fund flows remained skewed towards selling during the week, with only a few sectors seeing net inflows. Specifically, hedge funds increased their exposure to financials, health care, and energy, while the largest net outflows occurred in consumer staples, tech, and industrials.

Citi also highlighted changes in its flow-based relative value model, where tech replaced real estate among the top three sectors. Utilities and materials now rank in the bottom three, replacing tech and communications.

According to Citi’s strategists, current market internals suggest that pricing, as of last Friday, has shifted away from “Soft Landing” sector positioning. Notably, the recent price action resembles a blend of "early recession," with energy and tech underperforming, and "recession late," where cyclicals have outperformed defensive stocks.

More recently, strategists note that the “Soft Landing” correlation has declined, while the “Overheat” correlation has risen. They caution that over the past few years, when the 'Overheat' correlation has turned positive, it has “spelled trouble for the S&P and is something investors should keep an eye on.”

The S&P 500 and Dow Jones Industrial Average closed at record highs on Tuesday, overcoming weak consumer confidence data, as mining stocks surged in response to China's announcement of a major stimulus package.

The Dow rose 0.20%, the S&P 500 gained 0.25%, and the Nasdaq Composite climbed 0.56%.

Source: Investing.com