Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Thursday.
Today is Thursday, July 2nd.
What a great day it is to be alive.
Today I want to talk about a note out of Goldman Sachs Prime Services — the division that services the biggest hedge funds in the world.
They get a bird's-eye view on where smart money is moving.
And last week, hedge funds sold more tech equities at the fastest pace since Goldman began tracking this data in 2016.
The selling was even heavier than August 2024, when the Nasdaq-100 fell more than 10% into correction territory.
They also sold more US stocks overall than at any point since Liberation Day in April 2025.
And here's the other thing the note pointed out.
The Mag 7 — Apple, Google, Amazon, Meta, Microsoft, Nvidia, Tesla — are losing their grip on hedge fund portfolios.
Exposure to those stocks has fallen to 14.5% of total US hedge fund holdings.
That's the lowest level in three years.
It's down seven percentage points since the start of the year, when it was sitting closer to 24 or 25%.
The biggest six-month decline since the 2022 bear market.
What Does This Mean?
We've been doing the same thing.
We've been lightening up on tech positions that have had terrific runs in a short period of time.
And I want to explain why, because I think it's important.
I was talking to Simmy the other day and I said to him, "It's easy to be a value investor when things are cheap."
When everything's marked 50, 60% off, you don't have to be that discerning.
A little of this, a little of that.
When the market really rallies and goes a little bonkers, it's a different game.
In a bear market, valuation is simple.
The business is selling at a fraction of what it's worth.
Done.
In a bull market, you start to define value a little differently.
Take ARM Holdings, for example.
If you value it on the way it did business before, the stock looks expensive.
If you value it on the opportunity in front of it, it looks misvalued.
That's the pivot you make at the top of a bull market.
I Am Not Saying This Bull Market Is Over
What I'm saying is it's taking a serious breather.
And a serious breather is exactly when I like to sell.
I like to sell into strength.
I like to sell when other people want what I have.
I don't like to sell when there's crickets and nobody's there.
Think about it like a bidding war.
You don't sell your house when the neighborhood's quiet.
You sell it when three buyers are fighting over it.
That's what we've been doing.
And these hedge funds are doing the same thing.
They're fast money guys.
They're dating these stocks, not marrying them.
Tech is going to spend heavily on CapEx for the next twelve months and they know it.
So they step back, wait for clarity, and revisit.
The same thing happened with defense seven months ago.
They left the defense sector in droves and ran back into tech.
Now they're running out of tech and the defense sector is popping.
AVAV was up 15, 20% the other day.
Kratos jumped on the news.
All of a sudden everybody's like, "Oh right, the US military wants drones and these guys make them."
The light switch comes on and the stock jumps.
But the day before, nobody wanted it.
That's just how Wall Street works.
You watch a flock of birds and they're all flying in one direction, then the lead bird cuts hard and they all follow.
Stampedes of investors work the same way.
What This Sets Up
Classical theory, and experience, says this is how it plays out.
The big stocks get hammered first.
Then it cascades down to the smaller ones.
And when it gets to the smaller ones, that's when the real bargains show up.
We should be seeing a lot of bargains in the tech sector in the coming months.
That's great for us.
Why make investing harder than it needs to be?
Have a wonderful day.
I'll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine