The latest report from Goldman Sachs Group’s prime brokerage, which facilitates trading for many of the world’s largest and most prestigious buy-side firms, cut right to the heart of an issue that has been troubling Wall Street professionals all year. That is, strong performance in indexes like the S&P 500
and Nasdaq Composite
belie weakness in most U.S.-traded stocks.
While the latest prime-brokerage data shared by the investment bank showed sophisticated investors had upped their bets against individual stocks, this same cohort also increased its long positions in equity indexes and index-tracking products, many of which aim to replicate the performance of the S&P 500 and other popular indexes. Hedge funds have now added to short positions against individual stocks for 14 weeks, a notable stretch. But at the same time, these sophisticated and extremely active trading firms have been piling into bullish bets on U.S. stock-market indexes over the past three weeks. At first brush, this might not make a whole lot of sense, until one considers the following: Because the S&P 500 is now so heavily weighted toward megacap technology stocks, a bet on the index is tantamount to a bet that the “Magnificent Se …