Goldman Sachs strategists have observed a significant shift in hedge fund investments toward cyclical sectors like finance following Donald Trump's presidential election victory. According to a report by strategist David Kostin, hedge funds have reduced their net holdings in healthcare, consumer staples, and real estate, while increasing their financial stock holdings to the highest level in at least 15 years.
The company's basket of "cyclical versus defensive stock pair" rose by 6% shortly after the election, marking the largest single-day increase in cyclical stocks since the COVID-19 pandemic declaration in March 2020. Notable financial stocks gaining popularity among hedge funds this quarter include Everest Group (EG, Financial), Intercontinental Exchange (ICE), Rithm Capital (RITM), Raymond James Financial (RJF), and W.R. Berkley (WRB). Discover Financial Services (DFS) and PayPal (PYPL) have been added to Goldman's "Hedge Fund VIP" list.
Goldman's list of stocks favored by both hedge funds and mutual funds includes construction materials company CRH (CRH), transaction processing company Fiserv (FI), payment companies Mastercard (MA) and Visa (V), insurance company Progressive (PGR), audio streaming service Spotify (SPOT), and data center equipment manufacturer Vertiv Holdings (VRT).
Wall Street analysts are focused on predicting the potential impact of Trump's victory on bank stocks. Analysts expect deregulation, reduced antitrust scrutiny, and higher tariffs to result in increased merger and acquisition activity and higher terminal rates. Citigroup analyst Keith Horowitz noted that key risks such as regulation, interest rates, and credit are all showing positive signs, creating a more favorable environment for mergers and acquisitions.
Morgan Stanley analysts have also shown a preference for financial stocks, upgrading the sector to "overweight" due to reduced earnings season risks, accelerated capital market activity, and attractive valuations. The anticipated deregulation following the recent presidential election is expected to further boost the sector's performance.
