Large inflows from long-only managers; Hedge fund selling accelerates: Citi

Long-only managers continued their buying activity over the past week, Citi strategists said in a Tuesday note.

Last week, the Wall Street firm highlighted that long-only managers had resumed buying for the first time in seven weeks, initially focusing on defensive sectors. However, this past week saw a notable shift, with Tech stocks also attracting strong inflows.

In addition, long-only managers also added positions in Financials, Consumer Discretionary, Health Care, and Industrial, while, reducing their exposure to Utilities, Consumer Staples, and Communications.

Hedge funds, on the other hand, were net sellers across almost all sectors, with the most notable net outflows occurring from Tech, Financials, Materials, and Energy.

“The only sector net bought by Hedge funds last week was Communications,” Citi strategists noted.

They also pointed out last week that the Stagflation and Goldilocks correlations, where Tech is the dominant sector, appeared to be bottoming out, reminiscent of the drawdown seen in the second half of April earlier this year. This trend seems to be unfolding as anticipated, with both correlations rising this week as the "Overheating" trades theme diminished.

Moreover, the “Recession early” correlations have increased alongside the defensive sector positioning observed in recent weeks, while “Recession late” correlations, which typically capture recession trades after the worst has passed, have also seen an uptick.

U.S. stocks closed slightly lower on Tuesday, ending their recent winning streak as the market awaited the upcoming Jackson Hole Economic Symposium, which begins on Thursday.

All three major U.S. indexes, the S&P 500, Dow Jones Industrial Average (DJIA), and the Nasdaq Composite, dipped, putting a stop to a multi-session rally that had seen the equities market recover from a sharp decline sparked by recession fears.

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