Hedge Funds Exit U.S. Consumer Stocks Despite Positive Economic Signals

Hedge funds are voting with their feet as U.S. consumer stocks experienced net selling last week. The nominal deleveraging scale reached the second highest record in the past year. Optimistic U.S. economic data has been met with hedge fund skepticism.

Data from Goldman Sachs Prime Book indicates that last week saw net selling in U.S. consumer stocks, with long positions being sold off more than short positions were covered. This nominal deleveraging—which includes both long selling and short covering—ranked in the 96th percentile over the past five years. Hedge funds also hold a cautious attitude towards restaurant stocks.

These large-scale sell-offs demonstrate that hedge funds continue to doubt the resilience of U.S. consumer spending. However, recent economic data do not yet show signs of a consumer downturn. Data released earlier revealed July retail sales in the U.S. increased by 1% month-on-month, exceeding expectations and setting the highest record since the beginning of 2023. The University of Michigan's August Consumer Sentiment Index rose for the first time in five months, with inflation expectations remaining stable.

Latest financial reports from global retail giants also sent positive signals. Walmart’s second-quarter revenue and net profit both exceeded expectations, and the retailer raised its full-year performance guidance. The world's largest "Buy Now, Pay Later" service provider indicated that U.S. consumers have not shown any signs of reduced spending.

Recent data on retail expenditure and unemployment benefits have assuaged some concerns about the U.S. economy, though some sectors remain constrained by rising interest rates. July’s retail sales marked the most significant increase since early 2023, with general retail spending on the rise. This aligns with Walmart’s upgraded performance forecast, indicating that while consumers are becoming more cautious, they are still spending.