Goldman's Warning: Hedge Funds Are Selling EVERYTHING

Goldman Sachs just revealed that hedge funds are betting big on a decline in the US stock market, raising serious questions about 2026 crash. So should we sell the S&P and go global? It might not be that simple because global investors are also selling stocks at the fastest rate since the 20% drop last year. And as the war escalates, the risk of higher inflation means that going to cash could also be the wrong move. I'm James Helliwell, I'm a former professional trader turned financial educator, and in this video I'm going to break down exactly what the Goldman report said and just as importantly what it didn't say. And show you how to position your portfolio so that you're not on the wrong side of the trends that are unfolding right now. And if you watch to the end, I'll be sharing a link to the free tool I've built to help you profit from this. Now, first, some context here. Goldman isn't telling the clients to sell everything. They're simply reporting what the hedge fund clients already did. And that matters because there's a big difference between what professional speculators are doing with the money and what we should be doing with ours. Why, that's ridiculous. So let's begin with what they're actually shorting. So Goldman breaks this down into basically two big shorts. The USA, and then emerging markets. America first! On the left-hand side, you can see the sectors that are the most heavily sold, and in this case, shorted: consumer discretionary, tech firms, and also financials. And while stocks overall are generally being sold, there are some pockets of net buying, and they're concentrated in just these sectors: energy, healthcare, and consumer staples. So you can see a rotation and a contrast between the two, and that's what I want to focus on. So this chart from BlackRock explains what is going on here. You can see the most shorted sectors in tech, consumer, and financials on the right-hand side of this chart. These are the sectors that are most sensitive to inflation. In this case, when it rises, they tend to sell off. So that explains the most sold bucket. And on the other side of that, that's where you can see the most bought sectors: energy, healthcare, and consumer staples again. So what this suggests is that they're looking to buy inflation protection. And you can see this in the performance of the sectors here on the chart a bit more easily. In green, you have energy, consumer staples, and at the bottom, you have tech and consumer discretionary. So there's a big spread between these as the longs and these as the net shorts. If you were to track a ratio of the two, let's say you play the more defensive inflation durable consumer staples compared to the more retail-focused consumer discretionary ETF. That chart looks very similar to the next one, which in blue is the chart of inflation expectations. And you can see how interest rate expectations in white have of course followed that because as inflation rises, there's generally a greater perceived risk of higher rates. In other words, the bank probably needs to raise interest rates. So rising rates brings us onto the second part of the two big shorts that Goldman are talking about in its report. Now, this rotation tool I built, you can get access to it by the link in the description. It shows you the relative rotation from improving to leadership moving towards lagging and ultimately underperformance relative to the global stock market. And what we can see on this particular chart are 3 emerging markets. In particular, we have Taiwan, China, and India, and how they're positioned in different quadrants. So in the case of India and China, they're down in the bottom left quadrant. That's not where you want to be if you are long. On the other hand, whilst Taiwan is still very much an emerging market, it's still to the right-hand side of the growth axis. So although although it's been slowing, it's still showing expansion. Now India, you can see, has a pretty high level of debt to GDP, about 80-85%, and it's similar to China. But the difference with China is the upward trend. Now by contrast, you can see that Taiwan has a much lower level of debt to GDP, below 30%, and most significantly, it's trending in the opposite direction, which means that it's less sensitive to increases in interest rates because it's not as reliant on debt. It simply doesn't have as much of it. And remember, the key here is that this debt is issued in US dollars. So that's why US interest rates matter to emerging markets. So if we're to look at this on a chart, it's not a surprise to see year-to-date Taiwan at the top with a positive return about 10% and China with a negative return of -10%. So once again, being selective and understanding what is driving these different trends inside of the same asset class or area of the market is absolutely key to figuring out the best position to be in. Now, this is where I want to take a step back for a minute and just look at the bigger picture, because there's a real risk that all of this that Goldman's talking about could end up being premature, and therefore it could reverse at any moment. Because after all, earlier this week, a single post by Trump saw global equities surge 4%, adding nearly $4 trillion to the market valuation in just 9 minutes. Only for the optimism to fade the very next day. So piling into the same trade and betting on short-term sentiment is inevitably going to result in losses. So let me show you how you can avoid that by looking at the next tab that we've got here. So this tool I've built, I'll include a link to in the description. And just to frame what it is, if you click on the backtest tab, it essentially shows how the market would have performed under different regimes: expansion, Slowdown and contraction. Now at the top you've got the various different risk assets that you can choose, whether it's the S&P, the NASDAQ, or MSCI World global stock market. And then you can pick your safe haven assets, long-term bonds, 10-year treasuries, what have you, and your target split 60/40, 50/50, and so on. There's lots to play around with here. Everything that I'm about to show you is depicted by this backtest. But to return to the original question, which Is all of this premature? This is why I want to bring in the data, because right now you can see that we are in an expansion regime. It has yet to tip over into slowdown and certainly doesn't show any signs of contraction. And historically, these periods shaded in green with the S&P here overlaid have resulted in a forward 3-month return of 2.7%. During slowdown, the return drops to just over 1%, and contraction, as you'd expect, is negative over a 3-month period. So in this environment, the ideal trade would be to look at a more cyclical sector such as industrials rather than defensive sectors like consumer staples. And you can see again the summary table at the bottom showing that industrials have tended to outperform staples by about 1% during this phase of the market regime. But the question is, to what extent is inflation potentially a threat? Because that could change how we're positioned even within this regime. Well, we can move on to the inflation tab and see the same kind of thing here. And currently you can see that it's neutral. It doesn't show the signs of inflation that most people in the market are worried about. And I think that suggests more than anything that this is being short-term sentiment driven based on the headlines rather than the economic reality, at least at this stage. But what if the hedge funds are right and we are heading towards a slowdown and we just don't know it yet? Well, clicking into the slowdown quadrant here, well, you can see in the featured ratio here that we should be looking towards quality which tends to have a more durable earnings growth compared to value, for example, which is prone to more cyclicality. And during this environment, quality has outperformed by about 0.5% over the next 3 months. Remember, this is on a relative basis compared to value, and it could still be rising an awful lot more in absolute terms if the broader market also continues to grind higher, albeit at a slower expected pace than during expansion. And there's some more ideas on the right-hand side which you can take a look through, including consumer staples, which of course was the underweight during expansion. So they might well be right after all, but the standout style here is definitely in quality. And if you want to know how to find quality stocks that will not only save you in a slowdown but beat pretty much everything else over the cycle, then watch this video next, which YouTube thinks you're going to love. And in the meantime, I'm going to head out and eat some empanadas because it's been my first video from Buenos Aires. Buenas noches, buenas tardes, mañana, mañana. I don't know, I'm out of here. Take it easy. America first.