Hedge funds increased their bearish positions more than their bullish ones in March, at the highest rate since 2020, indicating a strong belief that U.S. stocks will continue to decline. This insight was shared in a note from Goldman Sachs to clients. While the S&P 500 dropped nearly 5% since the start of March, a global stock index excluding the U.S. has risen by 3%, on track for its best first-quarter performance since 2019 with an 8% gain so far.

The U.S. Federal Reserve downgraded its economic growth forecast for the year and raised inflation expectations due to uncertainties surrounding President Donald Trump's trade tariffs. Despite the recent market volatility, hedge funds did not retreat but rather increased their trades, particularly focusing on those predicting further market declines.

Hedge funds rapidly decreased their stock holdings within a 48-hour period after the first week of March when the S&P 500 experienced a 3.1% decline, marking its worst weekly performance in half a year. The bearish sentiment toward U.S. stocks is more prevalent compared to Europe and Asia, where hedge funds opted to exit losing positions without reinvesting.

Tech and media stocks have seen a significant decrease in exposure from hedge funds, reaching a five-year low. Some funds have started shorting the tech sector, while others have increased bearish bets on AI-related shares. Tech-focused funds have reported negative returns of 4.1% this month, while healthcare-focused funds show a negative return of 1.5%, according to Goldman Sachs.

Despite the recent market challenges, global stock pickers have shown a 1.5% increase in returns this year, improving after a tough two-week period. Systemic hedge funds have been successful during the market downturn, posting a return of 8.9% so far this year, as per the report from Goldman Sachs.