The S&P 500 is edging closer to a correction as it has fallen approximately 9% from its recent peak. This decline comes amid significant activity in the financial markets, where hedge funds have been selling stocks at an unprecedented rate. The combination of selling stocks and covering shorts on Friday and Monday marked the largest two-day de-grossing activity in four years, according to Goldman Sachs' prime brokerage unit.
A soft inflation report provided a brief respite on Wednesday, sparking a minor relief rally. However, the market's overall performance remains under pressure. The SPX YTD mountain, which measures the S&P 500's performance, reflects this volatility.
Goldman Sachs' chief U.S. equity strategist, David Kostin, has adjusted his year-end target for the S&P 500 from 6,500 to 6,200. Kostin is the first major Wall Street bank strategist to revise his forecast for 2025, highlighting the shifting sentiment among market professionals. The CNBC Pro Market Strategist Survey continues to track these forecasts from major Wall Street banks.
Professional money managers have been actively cutting back on risk exposure, with industrial stocks experiencing the most significant de-grossing activity among hedge funds. Risk-off flows on Friday and Monday reached record highs, driven by tariffs and indications of softer economic growth.
"We have high economic uncertainty, high political uncertainty and high technological uncertainty. Only one thing can happen. Discount rates have to go up. Risk premiums have to go up…. So for us that was just a period to say, 'OK we'll go to the sidelines to wait this out.'" – Brad Gerstner
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