Just two months after Wall Street poured billions into so-called “Trump trades”, hedge funds are now taking strong bets on United States President Donald Trump's policies leading to a severe market correction.
According to Goldman Sachs data, a massive surge in 'short' positions against US stocks underscores a strong expectation that markets are heading for an abrupt and nasty crash.
The strong "fix" hedge funds are now placing against the U.S. economy and Trump's presidency is evident in the market activity during January which saw investors place 10 times more bets on American stocks falling – aka shorting - than on their continued rise.
Goldman Sachs' strong pivot towards shorting marks a staggering reversal from just two months ago when hedge funds placed strong bets on the expectation that Trump's aggressive tax cuts, tariffs, and deregulation policies would deliver a golden era for corporate America.
It’s understood that optimism in the wake of Trump’s victory led to a record influx of capital, pushing hedge fund assets to US$4.5 trillion.
Assuming markets do tank - and hedge funds make fortunes from a stock market collapse - U.S. workers - who backed Trump's economic promises - relying on their 401(k)s and pension funds for their financial future, stand to be major market casualties.
This eventuality has signalled alarm bells for many financial analysts.
“The increase in short bets against U.S. stocks likely reflects concerns about macroeconomic uncertainty,” warned Bruno Schneller, managing partner at Erlen Capital Management to the Daily Telegraph.
Echoing similar sentiments, Elliott Management, one of the world's most influential hedge funds with over $70 billion in assets believes Trump's policies fuel speculative bubbles that could 'wreak havoc' if markets crash.
Then there’s UBS which recently noted, “As the new year unfolds, uncertainties persist regarding Trump's policies, the global economic trajectory, and central bank actions.”
Given that Trump's allies have warned of a crackdown on Wall Street excesses, the latest short-selling frenzy by fund managers may force the president to act against those now standing to gain from America's economic downfall.
What’s also fuelling the mounting hedge-fund diaspora to shorting is the recent $600 billion wipeout experienced by major US tech stocks due to fears over Chinese AI rival DeepSeek - which reflects growing anxiety over Wall Street's future with Trump at the helm.
The Magnificent Seven - Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla - all suffered massive losses, leaving investors scrambling for answers.
