Hedge funds are increasingly bearish on US small-cap stocks, despite a recent rally, driven by growing economic uncertainty and the prospect of sustained high interest rates. According to Goldman Sachs data, short interest in the Russell 2000 Index reached $16 billion in July, a near-record level since 2021. This bearish stance is further evidenced by hedge funds’ net exposure to Russell 2000 futures dropping to a one-year low, contrasting sharply with record-high positioning in Nasdaq 100 futures.

Small-cap companies are particularly vulnerable due to weaker balance sheets and greater reliance on external financing, making them susceptible to inflation and a slowing economy. The renewed trade war agenda under US President Donald Trump also contributes to this skepticism, challenging earlier “Trump trade” benefits for small caps.

End Notes

Source: https://www.hedgeweek.com/hedge-funds-turn-bearish-on-us-small-caps/