Hedge Funds Reduce Risk in July, Approaching Record Levels

Hedge funds have been de-risking in July at levels close to record levels for the past decade, with short covering being the main driver. Long/short hedge funds experienced a nine-day streak of negative returns, the longest since January 2017, and are expected to face the worst monthly alpha drawdown since May 2022. Goldman Sachs' prime brokerage report indicates signs of capitulation emerging. Meanwhile, US stocks show modestly positive levels, with Adobe experiencing significant gains and Apple and Amazon preparing to report earnings.