Stock Market: Why Wall Street is Buying While Investors are Selling

A Wave of Historic Sales on Stocks

The numbers are staggering. Over the three days ending July 28, hedge funds made their largest sell-off of global tech stocks since records began in 2016.

At the same time, the total reduction in equity exposure has reached its highest level since November 2022. The selling pressure has spread across all sectors, with North America leading, followed by Europe. The sales were primarily driven by short covering on macro products, such as index futures and ETFs.

On the retail side, the mood is equally tense. According to Vanda Research, retail investors recorded their largest daily net sale of U.S. stocks since March 2020, with $243 million in net outflows, even as the S&P 500 closed in the green.

This type of movement is characteristic of a degrossing phase. Hedge funds are not necessarily looking to bet against the markets: they are simultaneously reducing their long and short positions to decrease their overall risk, often under the influence of rising volatility or macroeconomic uncertainty. These sales create temporary pressure on prices, paving the way for investors still holding cash.

Why Wall Street Players Have Started Buying Back

At the heart of the storm, one name keeps coming up: Citadel. Ken Griffin's hedge fund reportedly issued a note anticipating a surprise rate hike from the Fed just days before the collapse of AI-related stocks. As a result, Leopold Aschenbrenner's Situational Awareness fund, known for using 4x leverage, was reportedly forced to liquidate its portfolio.

According to several consistent reports, Citadel participated in buying back part of the liquidated portfolio of Situational Awareness. However, there is no evidence to establish a link between the publication of its Fed forecasts and the fund's liquidation.

Other voices downplay this. For Phil Trubey, Leopold is solely responsible for its downfall, having used excessive leverage to generate a 20x return in two years.

Citadel Securities thus confirms its appetite for AI-related stocks. But the fund has also invested heavily in crypto in recent months: $400 million in Crypto.com, valuing the platform at $20 billion, and €200 million in the Kraken exchange.

The Fed, an Unexpected Catalyst of the Shock

The macro trigger lies with the American central bank. The consensus now anticipates a Fed rate hike in September with a 65% probability, the first in three years.

The prospect of monetary tightening has pushed many investors to reduce their exposure to risky assets. However, this wave of sales has created opportunities for players with liquidity, capable of buying when prices drop.

The S&P 500 is currently trading around 7,437 points, up 1.66% on the day. A rebound driven more by short position buybacks than by buying conviction, which raises doubts about the future.

This type of episode illustrates a well-known market mechanism: when fear reaches its peak and the most fragile investors sell under duress, the best-capitalized players often become the main buyers. It is precisely in these capitulation phases that Wall Street builds its positions in anticipation of a potential rebound.

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