Last week, hedge funds executed their most aggressive selling of US technology stocks in over a decade, with the semiconductor sector experiencing net selling for eight consecutive trading days and the "Magnificent Seven" (Mag 7) group of stocks seeing net reductions for a fifth straight week, bringing positions near three-year lows. Concurrently, US tech-focused funds recorded historic outflows, signaling a sharp cooling in market sentiment.
Data from Goldman Sachs Prime Brokerage on June 29th shows that for the week ending June 25th, hedge fund net selling of the US Information Technology sector, whether measured in dollar terms or as a percentage, was the largest in ten years, with a z-score of -4.0, indicating an extreme event of four standard deviations. Overall US equities faced net selling for a second consecutive week at the fastest pace since the week of the so-called "reciprocal tariffs" last year.
This selling wave significantly impacted market flows. US equities saw a net outflow of $85 billion for the week, marking the first instance of capital flight since March 2026, following a record net inflow of $119.2 billion the prior week. The S&P 500 index closed the week down approximately 2%, with large-cap tech stocks falling roughly 6% during the week, and the semiconductor sector experiencing particularly pronounced volatility.
Tech Stock Selling Hits Decade High
The latest weekly report from Goldman Sachs' trading desk indicates that hedge fund net selling of the US Information Technology sector was the most prominent among all sectors last week, deviating from the one-year average by -3.8 standard deviations. This was driven by selling from both long and short positions, with a long-to-short selling ratio of 1.3 to 1.
Within the Information Technology subsectors, semiconductors and semiconductor equipment stocks contributed over half of the net selling value, followed by software, technology hardware, and communications equipment. Notably, the semiconductor sector has seen net selling for eight consecutive trading days. However, from a positioning perspective, the sector's net exposure as a percentage of total US Prime book volume remains at the 98th percentile over the past five years, indicating overall holdings are still elevated.
Meanwhile, EPFR data shows that US technology funds, after several weeks of substantial net inflows, experienced large-scale net outflows last week, further confirming the concentrated retreat of institutional capital.
The "Magnificent Seven" group continued its reduction trend last week, marking a fifth consecutive week of net selling. Goldman Sachs data reveals the group's gross and net exposures are currently at the 4th and 6th percentiles, respectively, over the past three years, both nearing three-year lows, reflecting a sustained erosion of hedge fund confidence in this core holding.
The backdrop for this selling spree is a notable divergence between the AI and hyperscaler cloud computing sectors—viewed as the "payers" for computing power—and the semiconductor sector, seen as the "beneficiaries." A market reassessment of AI investment return cycles, combined with multiple stock-specific disruptive factors, has collectively accelerated the capital exodus.
Materials Sector Also Sees Heavy Selling
The Materials sector also ranked among those with the largest net selling last week, recording its biggest weekly net sale in over three months, deviating from the one-year average by -1.9 standard deviations, with a short-to-long selling ratio of 1.5 to 1.
Within Materials, Metals & Mining was the subsector with the most net selling. Minor net buying in the Containers & Packaging and Chemicals subsectors only partially offset this pressure. The US Metals & Mining long/short ratio has now fallen to 1.21, down significantly from the year-to-date high of 1.69 in early June, placing it at the 7th percentile over the past year and the 3rd percentile over the past five years, indicating an extremely low positioning level.
Broad Sector Flows and Macro Products
From a broader structural perspective, eight of the 11 sectors recorded net selling. In dollar terms, the largest net selling was in Information Technology, followed by Communication Services, Industrials, and Healthcare. Consumer Staples, Energy, and Real Estate, in contrast, recorded net buying.
Juxtaposed against this, macro products (Indices and ETFs combined) saw net buying, deviating from the one-year average by +1.3 standard deviations, almost entirely driven by short covering with limited long inflows.
This pattern aligns with hedge funds' typical operations—selling individual stocks short while buying ETFs as a market-neutral hedge. Short interest in US-listed ETFs declined 2% for the week and 3.5% for the month, with covering concentrated in corporate bond, small-cap, and Consumer Discretionary ETFs.
Weekend Volume Surge and Market Context
Goldman Sachs' equity sales and trading desk noted that trading volume saw an "explosive" increase over the weekend due to the annual rebalancing of the Russell indices.
While the S&P 500 closed the week down about 2% and large-cap tech fell roughly 6%, semiconductor volatility was influenced by a confluence of factors, including weakness in the South Korean market, concentrated leverage trading, and individual company events related to Micron, ON Semiconductor, Qualcomm investor days, and reports concerning an OpenAI IPO.
Asset managers were overall net sellers, primarily driven by capital rotation away from large-cap tech stocks. However, Goldman Sachs described the selling as "orderly," with no signs of excessive reaction or panic. Hedge fund flows were roughly flat overall, with sector rotation continuing within the market.
Crude oil prices fell about 9% for the week, and the 10-year US Treasury yield declined 8 basis points to 4.37%, providing some support to consumer-related sectors.
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