At least one group of investors was ready for U.S. President Donald Trump’s Wednesday tariff announcement: hedge funds, which offloaded equities at a record pace. 

In March, hedge funds dumped global stocks at the fastest rate in 12 years, according to data from the prime brokerage desk at Goldman Sachs Group Inc. All sectors of the market were net sold last month, and North America suffering the biggest regional losses. In the U.S., tech stocks had the biggest net outflows, the Goldman’s co-head of prime insights and analytics Vincent Lin wrote in a note to clients. 

“The rollout of tariffs has created a situation where economic uncertainty made it harder to discern winners and losers,” said Jonathan Caplis, Chief Executive Officer of hedge fund research firm PivotalPath. “Fund managers have responded to the confusion by leading an equities market selloff, largely by adding short positions, particularly in the U.S.”

Investors shed US stocks in postmarket trading on Wednesday after Trump slapped reciprocal tariffs on at least 50 countries. The European Union faces a 20% levy and Japan a 24% tariff, while China faces a tariff of well above 50% on many goods. Contracts on the S&P 500 fell 3% at 5:15 a.m. on Thursday in New York, while Nasdaq 100 futures sank 3.3%. 

“President Trump’s reciprocal tariff announcement is a negative surprise versus investor expectations,” wrote Stuart Kaiser, head of US equity trading strategy at Citigroup Global Markets, adding that he expected a modest selloff in equities.

The widespread selloff in global markets makes clear that investors don’t expect any winners from the latest — and by the far the largest — salvo in a growing trade war. But they also suggest the U.S. itself might be one of the biggest victims of Trump’s protectionist policies.

“Where does it stop? I don’t really know,” said Vineer Bhansali, chief investment officer and founder of Longtail Alpha. “My guess is a 3% to 5% sharp selloff. Once that happens, maybe it’s a good time to start dipping your finger.” 

The S&P 500 Index is already down about 8% from its February record as tariff fears and growing skepticism about artificial intelligence hype has battered equities.

Some investors believe the downturn could soon be interrupted by a relief rally. On Wednesday morning, Barclays’ trading desk said that the vast majority of fast money investors anticipated a bounce in equities after April 2, marking it as a “peak” moment for negative sentiment.

Phil Pecsok, founder and CEO of Anacapa Advisors, said he had advised clients two weeks ago to pile into stocks ahead of Trump’s announcement, revving up for a “sell the rumor, buy the news” scenario. On Wednesday evening, he said the tariff news was worse than he expected, but added:“I do think we are a day or two from a short term low.”

And, if history is any guide, seasonality may propel stocks. For the last 75 years, April has been the S&P 500’s second-strongest month, with an average gain of 1.5% and stocks ending the month higher 71% of the time, according to BMO Capital Markets’ Russ Visch.

--With assistance from Jan-Patrick Barnert.

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