Speculators are increasing their short positions on U.S. equities, anticipating further market losses amid unresolved Middle East tensions. Data compiled by a prime brokerage unit of Goldman Sachs shows that hedge funds boosted their short exposure to equity exchange-traded funds (ETFs) by 8.3% in the week ending March 6. This pace of short accumulation has only occurred once in the past five years.

Concerns over surging oil prices and inflation have intensified as conflict escalates in the Middle East, dampening investor appetite for U.S. stocks. The S&P 500 fell 2% last week, while the CBOE Volatility Index (VIX) climbed to its highest level since the tariff-related turbulence in April.

However, short-term money managers have not fully exited the U.S. market. Hedge funds increased their holdings of individual stocks for the first time in five weeks, signaling that fund managers are seeking bargain opportunities in select equities while maintaining a cautious view on the broader market.

In a client note issued on Saturday, Goldman Sachs Managing Director Lee Coppersmith wrote, "Positioning and flow data reinforce the idea that investors are adding hedges but not really cutting exposure." On Friday, the S&P 500 declined 1.3%, with nine of its 11 sectors finishing lower. Although the index remained less than 4% below its January record high, Goldman’s proprietary U.S. volatility fear gauge surged to 9.72 out of a maximum of 10.

According to Goldman strategists, this divergence highlights a disconnect between mounting pressure at the single-stock level and the relatively modest decline in the broader index.