US equities extended their rally on the back of broadly benign inflation data and a strong rebound in the technology sector, prompting hedge funds to execute their second-most aggressive concentrated buying campaign of the year.

According to Goldman Sachs Prime Brokerage's latest weekly report released on August 17, hedge funds were net buyers of US stocks on every single trading day last week, with the pace of buying reaching the second-fastest level of the past year (+2.1 standard deviations). The buying was primarily driven by new long positions in single stocks, complemented by short covering in macro products.

The information technology sector recorded the largest capital inflows of any single sector, with short covering in software stocks particularly prominent — a segment that had previously been the biggest short target during the first half of 2026. Meanwhile, ETF short interest declined for a sixth consecutive week, signaling a continued contraction in overall bearish sentiment across the market.

This wave of buying displayed clear pro-cyclical characteristics: 8 of the 11 sectors recorded net purchases, led by information technology, communication services, healthcare, financials, and consumer staples, while real estate, energy, and utilities saw net selling. Last week, US stocks continued to climb toward record highs against a backdrop of tame readings across CPI, PPI, retail sales, and University of Michigan consumer sentiment data.

Goldman Sachs' Delta-One trading desk noted that the market is now entering the final stretch of the Q2 2026 earnings season, with only about 3% of S&P 500 constituents yet to report, primarily concentrated in the consumer sector. The July FOMC meeting minutes and preliminary PMI data will serve as the main catalysts this week, with investors seeking further clues on the Fed's policy trajectory.

Software squeeze ignites tech buying, Workday deal serves as catalyst

The information technology sector was the largest recipient of net capital inflows last week (+1.2 standard deviations), with buying driven by both new long positions and short covering at an approximate ratio of 2 to 1.

Short covering in the software sub-sector was a core driver of this round of tech buying. According to the Goldman Sachs report, following the announcement of the Workday acquisition deal for the human resources software maker, the market witnessed widespread short covering across software stock baskets and related ETFs. The software sector had been the most crowded short direction during the first half of 2026, and this squeeze has lifted hedge funds' net positioning in software stocks from a year-to-date low of 1.3% back to 4.5% — still well below the 7.0% level seen at the start of the year, suggesting the short-covering rally may not yet be complete.

The semiconductor and semiconductor equipment sub-sectors also recorded significant net buying, driven mainly by new long positions, benefiting from positive storage industry signals released at SanDisk's Investor Day. The Goldman Sachs report indicates that hedge funds' net positioning in the semiconductor sector currently stands at 10.4%, below the year-to-date high of 14.1% but substantially higher than the 6.8% level at the beginning of the year. The communications equipment sub-sector also posted net buying, led by new long positions.

Single-stock longs dominate flows, ETF shorts contract for six straight weeks

From a flow structure perspective, single stocks accounted for approximately 70% of last week's total net buying (+2.1 standard deviations), with a new-long-to-short-cover ratio of 7.6 to 1, indicating that capital was predominantly driven by active bullish positioning rather than forced short covering.

Macro products (indices and ETFs combined) contributed roughly 30% of total net buying (+1.0 standard deviations), with a short-cover-to-new-long ratio of 1.4 to 1.

Short interest in US-listed ETFs fell another 3% last week, bringing the monthly cumulative decline to 12% and marking a sixth consecutive week of net reductions. The covering was primarily concentrated in small-cap ETFs, technology ETFs, and large-cap ETFs, partially offset by fresh short positions in real estate, Latin America, and healthcare ETFs.

On the leverage front, total gross leverage for US long-short equity funds declined 0.7 percentage points to 203.5%, sitting at the 4th percentile of the past year. Net leverage fell 2.3 percentage points to 51.3%, placing it at the 13th percentile over the same period. The fundamental long-short ratio (market-cap weighted) decreased 2.2% to 1.674, at the 66th percentile of the past year. Overall, leverage levels remain relatively subdued, suggesting institutional positioning is not excessively crowded.

Real estate reverses course, first net selling after eight weeks of buying

The real estate sector delivered the most notable contrarian signal of the week. After recording net buying in seven of the previous eight weeks, the sector flipped to become the largest net selling target of the week (-0.4 standard deviations), with a short-sell-to-long-buy ratio of 1.3 to 1.

Specialized REITs, retail REITs, and industrial REITs were the sub-sectors with the largest net selling, while healthcare REITs and diversified REITs posted modest net buying. The current long-short ratio for US real estate stocks stands at 1.70, at the 82nd percentile of the past year and the 78th percentile of the past three years — elevated valuations are likely a key backdrop for profit-taking.

The energy and utilities sectors also experienced net selling, standing in sharp contrast to the strength seen in growth and pro-cyclical sectors such as information technology and communication services, further confirming the pro-cyclical direction of this round of hedge fund repositioning.