Hedge funds ramped up an unprecedented number of short positions against stocks last week, triggered by President Donald Trump’s unexpectedly steep tariffs that sent shockwaves through Wall Street. According to data collected by Goldman Sachs’ prime brokerage since 2010, these fast-moving professional traders executed the largest single-day net sales of global equities through Thursday, coinciding with Trump’s announcement of significant levies.
Tony Pasquariello, who heads hedge fund client coverage at Goldman, described the market reaction as “Liberation Day,” noting the severity even took by surprise those with a hawkish viewpoint. The rapid move by hedge funds to add layers of protection came amid growing fears that Trump’s actions marked the start of a global trade war potentially ushering in a recession.
Trump’s tariff policy threatens to push the U.S. tariff rate from 2.5% to over 20%, marking an elevation not seen since 1910. This surpasses even the infamous Smoot-Hawley tariffs of 1930, often blamed by economists for exacerbating the Great Depression. Consequently, the Dow Jones Industrial Average endured consecutive 1,500-point losses last Thursday and Friday—an unprecedented event in its 129-year history—while the S&P 500 saw a steep 10% drop over those two days.
Moreover, billionaire investor Stanley Druckenmiller voiced his opposition to tariffs exceeding 10% over the weekend, a sentiment echoed by fellow billionaire Leon Cooperman. Cooperman predicts further stock declines, suggesting that tariffs are a “mistake” with potential recessionary impact for the U.S. economy.
Goldman indicated that nine out of the 11 investment sectors in the S&P 500 experienced net selling, with stocks in financials, technology, and consumer discretionary hit the hardest. The Wall Street investment bank observed financial sectors were sold at the fastest rate since January 2021, marking the second-highest pace ever recorded.
Pasquariello noted that the drop in prices prompted extensive selling across various client bases, suggesting that many investors have moved into “self-protection mode.” He highlighted the increasing chances of sudden, sharp rises in stock prices—a phenomenon that can occur when there are numerous short positions. This was clearly demonstrated on Monday as stock prices swung wildly in response to changing headlines about the Trump administration’s trade policy.
