Hedge funds recalibrate positions following major short squeeze

Hedge funds are recalibrating their market positions following a period of intense volatility and a significant short squeeze. After a massive shorting spree in March 2026, where short sales outpaced long buys by a ratio of 7.6 to 1, funds faced a rapid unwind triggered by a temporary ceasefire in the US-Iran conflict. This event caused equity markets to rise sharply, forcing many institutional short sellers to cover their positions at a pace not seen since March 2020.

Recent data from Goldman Sachs indicates a shift in strategy. Rather than betting against broad market indexes and ETFs, which accounted for 76% of previous short positioning, funds are moving toward more cautious, market-neutral stances or selective single-stock bets. Some multi-strategy firms, including Citadel, Schonfeld, and ExodusPoint, reportedly maintained positive returns through the turbulence by utilizing diversified strategy pods.

Additionally, there is evidence of renewed risk appetite as hedge funds rebuild equity exposure. Following a defensive period in late July driven by volatility in artificial intelligence stocks, funds have become net buyers of global equities for two consecutive weeks. This shift includes significant short covering in the materials sector and a move toward directional risk-taking as market sentiment improves.