Hedge Funds Scramble to Cover Short Positions as Stocks Rebound

Hedge funds were caught on the wrong side of a sharp two-day swing in the stock market, rushing to protect against losses on Thursday only to unwind those positions a day later as prices snapped back.

“We are seeing significant hedge fund covers in macro products, such as indexes and ETFs, across our trading desk,” Goldman Sachs Group Inc.’s partner John Flood wrote in a note to clients Friday. “Makes sense keeping in mind that yesterday hedge funds were in pure profit-and-loss protection mode, actively hedging via macro products.”

Short positions across US exchange-traded funds jumped 4.6% on Thursday, marking ...