Hedge funds have been aggressively buying US stocks for five consecutive days, with a short squeeze in the tech sector driving the second-fastest buying spree of the year.

Driven by broadly mild inflation data and a strong rebound in the tech sector, US equities extended their rally, prompting hedge funds to launch the second-fastest concentrated buying action of the year.

On August 17, according to the latest weekly report from Goldman Sachs Prime Brokerage, hedge funds were net buyers of US equities every trading day last week, with a buying pace that reached the second-fastest level of the past year (+2.1 standard deviations). The buying was mainly driven by individual stock long positions, coupled with short covering in macro products.

The information technology sector saw the largest single inflow of capital, with short covering in software stocks being particularly prominent—this sector had previously been the most heavily shorted in the first half of 2026. Meanwhile, ETF short positions have seen net reductions for the sixth consecutive week, showing that overall market shorting sentiment continues to shrink.

This wave of buying exhibited a distinct pro-cyclical pattern: 8 out of 11 sectors recorded net buying, with Information Technology, Communication Services, Healthcare, Financials, and Consumer Staples leading the gains, while Real Estate, Energy, and Utilities faced net selling. Last week, US stocks continued to climb toward historic highs amid broadly mild CPI, PPI, retail sales, and University of Michigan Consumer Sentiment data.

Goldman Sachs Delta-One Desk pointed out that the market is entering the tail end of the Q2 2026 earnings season this week, with about 3% of S&P 500 constituents yet to report, mainly within the consumer sector. Minutes from the July FOMC meeting and preliminary PMI data will be the key catalysts as the market seeks further clues on the Federal Reserve's policy trajectory.

Short Squeeze in Software Stocks Ignites Tech Buying; Workday M&A News Is the Catalyst

The Information Technology sector saw the largest net capital inflow last week (+1.2 standard deviations), with buying driven by both long position building and short covering in a roughly 2-to-1 ratio.

Short covering in the software sub-sector was one of the core driving forces behind the tech buy wave. According to the Goldman Sachs report, after the announcement of Workday's M&A news, there was broad-based short covering in baskets of software stocks and related ETFs. Software had been the most concentrated short sector in the first half of 2026. This short squeeze pushed hedge funds’ net allocation to software stocks up from a year-to-date low of 1.3% to 4.5%, though still far below the 7.0% level at the start of the year, suggesting the short covering rally may not be over yet.

The Semiconductors and Semiconductor Equipment sub-sector also recorded significant net buying, mainly through long position building, benefiting from the positive storage industry signals released by SanDisk Investor Day. Goldman Sachs reports that hedge funds’ net allocation to semiconductors is currently at 10.4%, below the year’s peak of 14.1% but has already risen sharply from 6.8% at the beginning of the year. The Communication Equipment sub-sector also saw net buying, dominated by long position building.

Individual Stock Longs Dominate, ETF Shorts Shrink for Six Consecutive Weeks

From a capital structure perspective, individual stocks accounted for about 70% of last week's total net buying (+2.1 standard deviations), with a ratio of long position building to short covering as high as 7.6-to-1, indicating that capital is mainly proactively going long, rather than merely being forced to cover shorts.

Macro products (indices and ETFs combined) accounted for about 30% of total net buying (+1.0 standard deviation), with a short covering to long position building ratio of 1.4-to-1.

US-listed ETF short positions declined another 3% last week, totaling a 12% drop for the month and shrinking for the sixth consecutive week. Covering was mainly focused on small-cap ETFs, tech ETFs, and large-cap ETFs, partially offset by new shorts in real estate, Latin American, and healthcare ETFs.

In terms of leverage data, the total leverage ratio of US long-short strategy funds declined by 0.7 percentage points to 203.5%, placing it in the 4th percentile for the past year; net leverage dropped by 2.3 percentage points to 51.3%, at the 13th percentile for the past year.

The fundamental long-short ratio (by market cap) fell 2.2% to 1.674, at the 66th percentile for the past year. Overall, leverage remains relatively low, indicating that institutional positioning is not excessively crowded.

Real Estate Sector Reverses—First Net Selling Post Eight Weeks of Net Buying

The real estate sector was the most prominent contrarian signal this week. After net buying in seven of the past eight weeks, the sector turned to the largest scale of net selling this week (-0.4 standard deviations), with a short to long ratio of 1.3-to-1.

Professional REITs, Retail REITs, and Industrial REITs accounted for the largest net selling sub-sectors, while Healthcare and Diversified REITs saw slight net inflows. The current US real estate stock long-short ratio stands at 1.70, in the 82nd percentile for the past year and 78th for the past three years, suggesting that relatively crowded valuations may be a backdrop for profit-taking.

The Energy and Utilities sectors also faced net selling, standing in sharp contrast to the strength in growth and pro-cyclical sectors such as Information Technology and Communication Services, further confirming the pro-cyclical tilt in hedge fund rebalancing this round.