Hedge funds ‘aggressively’ short financial stocks, says Goldman Sachs

Hedge funds “aggressively shorted” ‌global financial stocks last ⁠week ⁠and the sector was net sold internationally, the note said.

A short bet profits when asset values decline.

S&P’s financials index has fallen over 11% this year while an index of banks in Europe is down around 8%.

The moves come as the sector, alongside broader markets, faces selling pressure on concerns about the impact of the Middle East war on the global economy ⁠and concern that ‌the connection between financial firms and private lending could be more closely entwined than previously thought. A recent Moody’s report showed U.S. ⁠banks had lent nearly $300 billion to private credit providers as of June 2025. JPMorgan Chase reduced the value of some loans to private credit funds after reviewing the impact of market turmoil around software companies, Reuters reported last week following an FT report.

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“When a large institution like JPM (JPMorgan) starts marking deals lower, markets pay attention because it raises the possibility that others may eventually have to follow,” said Bruno Schneller, ‌managing director at Erlen Capital Management.
“If investors worry the marks across the system could move, the easiest way to hedge that risk is through liquid ⁠proxies like banks, insurers and financial indices,” added Schneller who added that short positions in financial stocks might be less a view on the banks themselves than a hedge against credit risk across the broader financial system. This might also add a way for speculators to recession-proof their portfolios, he said.

All sub-sectors in finance (excluding regional banks) were net sold so far this year, led by capital markets firms, financial services and consumer finance, said the Goldman report.