Hedge Funds Flee Tech Stocks Amid S&P 500 Surge, Eyes Turn to Consumer Staples

Goldman Sachs' recent client report reveals a significant shift in hedge fund activities, as they rapidly divest from U.S. technology stocks at the fastest rate in 12 months, coinciding with the S&P 500 index reaching historic highs.

The S&P 500, which includes seven of the ten largest market-cap companies in the tech sector, has climbed approximately 28% from its 2025 low, while the Nasdaq Composite has surged by a remarkable 38% during the same period.

Datastream data indicates that as of last Friday, the S&P 500's forward P/E ratio stood at 23.11, nearing a five-month high, signaling heightened valuation concerns.

Florian Ielpo, Head of Macroeconomic Research at Lombard Odier Investment Managers, highlighted in his report that U.S. stock valuations, particularly price-to-earnings ratios, are 30% above their ten-year average, compounded by persistently high ten-year yields. The future market direction may depend partially on declining long-term interest rates, a trend yet to be observed.

Goldman Sachs reports that hedge funds globally have been selling off technology stocks, a sector with high valuation, more vigorously than others. The strategy appears to focus on closing long positions rather than heavily shorting the tech stocks, aiming to profit from any asset price declines.

According to Goldman, last week's outflows from tech stocks reached the highest level since July 2024. Hedge funds' exit strategy from tech equities is predominantly evident in North American and European markets. All tech categories have been affected, spanning semiconductor firms to software and IT services companies.

Conversely, the report highlights that the consumer staples sector—companies whose sales remain stable despite economic conditions—emerged as one of the top sectors for net buying last week. Hedge funds increased their holdings in these stocks for four consecutive weeks, primarily through long positions which benefit from rising stock prices, focusing on food, beverage, and personal care product suppliers.