Hedge Fund Short Leverage Hits 99th Percentile, Raising Squeeze Risk

Goldman Sachs Prime Brokerage data show global equity short leverage has risen to the 99th percentile of the past five years. Short trades outnumber long buys by about 5-to-1, while fundamental long-short funds' net leverage has fallen to a nearly three-year low. Goldman’s trading team flagged potential short-squeeze risk, although it said position data alone do not confirm a market turning point because the selling has clear fundamental drivers. Hedge funds appear to be hedging portfolios rather than exiting positions outright. Technology remains central to the positioning shift. In the two weeks through October 16, global information-technology stocks recorded their worst net selling in more than a decade of Goldman records. Net allocation to Goldman’s global AI basket fell to the 38th percentile of the past year, while its long-short ratio dropped to the 6th percentile. The Nasdaq 100 fell 5.5% last week, its largest weekly decline since April 2025, and its futures were down nearly 2% on Thursday. Global fundamental long-short funds were down 2.5% since October, reducing year-to-date returns to 10.1%; TMT-focused funds were down 7.4% month-to-date. Hedge funds’ net exposure to the US “Magnificent Seven” nevertheless rose to a record high.