Goldman Sachs(US:GS) Hua Er Jie Jian Wen·2026-02-08 05:43Core Insights - The U.S. market experienced unprecedented volatility across asset classes due to a massive short-selling campaign by hedge funds, culminating in a brutal short squeeze on Friday [1] - Hedge funds recorded the highest single-day short-selling volume of U.S. stocks since 2016, with a short-to-long ratio of 2.5 to 1, affecting not only equities but also precious metals and cryptocurrencies [1][2] - A significant shift in market sentiment occurred on Thursday, with institutional investors beginning to buy into the IGV (software sector ETF), indicating a potential bottoming out of the sell-off [1][4] Group 1: Short Selling Dynamics - Hedge funds have net sold U.S. stocks for four consecutive weeks, with short-selling transactions significantly outpacing buying [2] - The nominal short-selling volume for individual stocks reached the highest level recorded since 2016, exceeding the five-year average by 3.2 standard deviations, with a short-to-long ratio of 2 to 1 [2] - Eight out of eleven sectors faced net selling, with the largest dollar-denominated declines in information technology, consumer discretionary, consumer staples, industrials, and real estate [2] Group 2: Software Sector Focus - The information technology sector was the worst performer, with net selling reaching the second-largest level in the past five years, and a short-to-long ratio of 5.4 to 1 [3] - The software industry was particularly hard hit, accounting for 75% of the net selling in the information technology sector, while semiconductor and IT services sub-sectors saw net buying [3] - The total net exposure and long-short ratio for the software sector reached historical lows of 2.6% and 1.3, respectively [3] Group 3: Market Sentiment Shift - A key buying signal emerged on Thursday, with institutional investors increasing their holdings in the IGV ETF by 12% on Wednesday, marking the largest single-day change in 2023 [4] - Despite caution from JPMorgan regarding high leverage among hedge funds, Goldman Sachs indicated that the software sector may have reached a bottom [4] Group 4: Short Squeeze on Friday - On Friday, a short-covering rally occurred, with the most shorted stocks surging by 8.8%, marking the second-largest single-day increase since 2022 [6] - The short-covering only addressed about 20% of the recent short positions, suggesting that further short-covering could continue unless short-sellers double down on their bearish positions [6]