Global hedge funds substantially increased short positions in financial-sector equities during the week to March 13, according to a client note from Goldman Sachs. The bank said funds sold shares across banks, insurers, fintech firms and trading companies, leaving financials as the most sold sector so far this year.
Goldman described the activity as hedge funds having "aggressively shorted" global financial stocks during that week, and noted that the sector was a net seller on an international basis. A short position benefits when the value of the underlying asset falls.
Market moves and indices
Market measures have reflected the pressure. The S&P financials index has dropped by more than 11% year-to-date, while a European banks index has declined by roughly 8% over the same period. The Goldman note said selling has been broad-based within the sector, with all sub-sectors except regional banks showing net sales year-to-date. The groups leading this selling were capital markets firms, financial services companies and consumer finance businesses.
Drivers cited in the note
Goldman flagged two interrelated concerns weighing on the sector and wider markets: potential economic fallout from the Middle East conflict and heightened attention on links between large financial institutions and private lending vehicles. A Moody's report included in market discussion showed that U.S. banks had extended nearly $300 billion in loans to private credit providers as of June 2025.
The note also followed reports that JPMorgan Chase had taken steps to reduce the value of some loans made to private credit funds after reviewing the effect of market turmoil surrounding software companies. The accounting moves by a major lender drew attention because they may signal how other institutions could mark similar exposures.
Market reaction and hedging logic
Bruno Schneller, managing director at Erlen Capital Management, told market participants that when a large institution such as JPMorgan begins marking deals lower, it prompts broader attention because it raises the possibility others may need to follow. He said: "When a large institution like JPM (JPMorgan) starts marking deals lower, markets pay attention because it raises the possibility that others may eventually have to follow."
Schneller added that investors wary of potential downward re-marking across the system often choose liquid proxies - banks, insurers and financial indices - to hedge that risk. "If investors worry the marks across the system could move, the easiest way to hedge that risk is through liquid proxies like banks, insurers and financial indices," he said, noting that short positions in financial stocks can serve less as a direct view on specific banks and more as a hedge against broader credit risk. He also observed that such positioning could provide a mechanism for speculators to reduce recession exposure in their portfolios.
Outlook within the sector
Goldman's assessment underscores the concentrated selling pressure within financials year-to-date and indicates that investor focus has shifted toward how interconnected lending relationships and macro developments may influence valuations across the sector. While regional banks were an exception among sub-sectors, capital markets, financial services and consumer finance have been among the most sold categories so far this year.
Note: This report summarizes the content of a client note from Goldman Sachs and related market reactions as described above.