Tariff clouds + off-season approaching Wall Street "smart money" accelerating withdrawal from US stocks.

Although the S&P 500 index continues to climb, approaching historic highs, Wall Street's "smart money" still maintains a bearish stance. The latest report from Goldman Sachs' prime brokerage business division shows that hedge funds have been consistently reducing their holdings of US stocks over the past four weeks, with the scale of selling far exceeding short covering. Particularly noteworthy is that, ahead of the earnings season for the technology, media, and telecommunications sectors, funds are rapidly reducing their positions at the fastest rate in a year - these sectors have been the main drivers of the stock market rebound since April. This cautious stance has enabled hedge funds to successfully avoid the selling frenzy caused by the tariff storm in April. While missing out on some gains as the S&P 500 index hit a new high in July, the retreat of these market's most savvy participants is worth watching as trade war concerns persist and the traditional slow season for US stocks is approaching. "Fund managers remain highly cautious because many potential risks have not yet been eliminated," said Jonathan Caplis, CEO of hedge fund research firm PivotalPath. This cautious sentiment is not limited to the investment community. The Federal Reserve maintained interest rates this week, with Chairman Powell once again emphasizing the need for more time to assess the impact of tariffs on inflation before policy shifts to easing. Precise hedging operations In late March, anticipating that Trump would announce tariff hikes, hedge funds quickly reduced their stock exposure and increased their short positions. This strategy has proven to be extremely prescient, especially for those funds that have also increased their allocations to global stocks (performing better than US stocks). "Hedge funds have avoided the pain of falling in sync with the market by lowering leverage in advance," Caplis said. "Because they weren't hit hard, they don't have to chase high prices now." In stark contrast to retail investors' enthusiasm, hedge funds have responded coolly to the stock market surge. Citadel Securities' head of equities and equity derivatives strategies, Scott Rubner, stated that retail investors have been net buyers of stocks for 23 consecutive trading days. The Goldman Sachs trading department believes that unless there are significant changes in economic outlook or employment data, retail investors' enthusiasm for entering the market will not diminish. Indeed, hedge funds did miss out on this rebound. The S&P 500 index has risen 27% from its low point in April and is on track to achieve its longest monthly winning streak since September last year. Year-to-date, hedge funds have performed mediocrely, with PivotalPath's diversified stock index showing an average return of 7.8% as of the end of June, only slightly above the 28% half-year performance since 2000. However, if the stock market's seasonal patterns come into effect, their strategies may prove effective at least in the short term. August and September tend to be the two worst performing months of the year, coupled with high valuations and the deadline for tariff policies, the S&P 500 index may face trouble. According to UBS data, performance during these two months has been worse when looking back at presidential terms since 1950. "In the first year of a president's four-year term, performance during these two months is particularly bad," wrote UBS's head of macro stock strategy, Aaron Nordvik, in the report, "if this pattern continues to hold, there may be strong gains by the end of the year, but the next two months starting around August 4th will be exceptionally difficult."