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Hedge funds piled into financial stocks at the fastest clip in three months last week as the Federal Reserve approved its first rate cut this year, according to Goldman Sachs’ prime brokerage data. Financials were the second-most bought global sector on a net basis — behind only tech stocks — and drew steady inflows from professional traders across all five trading sessions last week, according to Goldman. Buying was driven entirely by new long positions, rather than short covering. The notional net buying in financials ranked in the 98th percentile for the past five years, Goldman said. Nearly all financial subsectors attracted buying interest, led by banks, insurers and consumer finance firms. Mortgage REITs were the only area to see outflows, the firm said. The strong purchases came as the Fed last week announced a widely-anticipated rate cut and signaled that two more may be on the way before the end of the year. Lower interest rates can often prove beneficial to financial firms. The yield curve steepens when the Fed cuts short-term rates, while long-term rates are less affected. Since banks borrow short term and lend long term, a steeper curve improves banks’ lending profitability. Conversely, lower borrowing costs can stoke loan demand and economic activity, and financial companies involved in capital markets stand to benefit from a pickup in dealmaking and credit growth. Private equity giant Apollo Global Management jumped 4.5% over the past week, while Wells Fargo gained 4%. First Horizon and Bank of America each advanced more than 3% over the past five trading sessions.
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