Hedge funds are quickly closing out their bets against U.S. stocks at the fastest pace since the market crash in March 2020, according to Goldman Sachs (GS). This comes after President Donald Trump announced a two-week ceasefire in the conflict with Iran. As a result, many hedge funds rushed to cover their short positions, especially those tied to major indexes and ETFs. According to Goldman’s John Flood, investors are now starting to believe that this could be the beginning of the end of the conflict.
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Forget margin or options. Here's how the pros trade QQQAt the same time, this wave of short covering is helping push the market higher. Major indexes like the S&P 500 (SPY), Nasdaq (QQQ), and Dow (DIA) have all risen by more than 2% as investors reposition. Prior to this move, hedge funds had built up large short positions, with exposure reaching about 12% of total portfolios, the highest level since the pandemic. As a result, the sudden change is creating what Goldman describes as a “squeeze phase,” where rising prices force more investors to exit bearish bets.
Looking ahead, this change in positioning could lead to a rotation in the market. Sectors that performed well during the conflict, such as energy (XLE) and defense (ITA), may see short-term pullbacks as investors take profits. Meanwhile, capital could start flowing back into areas that were strong before the conflict, particularly semiconductor and memory-related stocks.
Is SPY Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SPY stock based on 413 Buys, 83 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $828.04 per share implies 23% upside potential.
