According to Prime Brakerage data from Goldman Sachs, the hedge funds were stacked into financial stocks in the fastest clip in three months last week as the Federal Reserve approved the first cut of the year. According to Goldman, finance is the second-most acquired global sector after only high-tech stocks, lagging behind only high-tech stocks, drawing a steady inflow from professional traders. The purchase was driven by a completely new long position, not a short cover. Goldman said conceptual net purchases in finance ranked in the 98th percentile over the past five years. Almost every financial subsector attracted the right to purchase, led by banks, insurance companies and consumer finance companies. Mortgage REITs were the only area where they saw outflows, the company said. The Fed announced widely expected interest rate cuts last week, creating a strong purchase that shows two more may be ongoing before the end of the year. Lower interest rates often prove to be beneficial to financial companies. When the Fed reduces the short-term rate, the yield curve becomes steeper, but the long-term rate is not affected. As banks borrow short term and lend in the long term, a steeper curve will improve the bank’s lending profitability. Conversely, reducing borrowing costs can cause demand for loans and economic activity, and financial companies involved in capital markets will benefit from transaction production and credit growth pickup. Private equity giant Apollo Global Management has increased by 4.5% over the past week, while Wells Fargo has scored 4%. First Horizon and Bank of America each have advanced more than 3% in their last five trading sessions.
