It's not "foreign capital smashing the market", what really crushed the US stocks is hedge funds.

Research by J.P. Morgan found that the recent sell-off in the U.S. stock market was largely driven by hedge funds, particularly stock-related hedge funds, reducing risk exposure on a large scale. On the contrary, there is little evidence to suggest that foreign investors are selling U.S. stocks on a large scale, and domestic retail investors in the U.S. continue to buy stocks. Nikolaos Panigirtzoglou, an analyst at the institution, pointed out in the latest report that the net outflow of foreign funds from U.S. stocks does not necessarily mean that U.S. stocks will experience negative returns or underperform relative to non-U.S. stocks, especially when domestic investors, particularly retail investors, continue to buy. The future direction of the U.S. stock market will largely depend on whether the U.S. is truly entering an economic recession. It is hedge funds that are truly weighing down on U.S. stocks. J.P. Morgan pointed out an issue in their latest research report - the corrections in the U.S. stock market since mid-February and its underperformance compared to other global markets have raised questions about "who is selling U.S. stocks" and "whether foreign funds are withdrawing investments." Data cited in the report shows that there is currently little evidence to suggest that foreign funds are selling U.S. stocks or U.S. bonds on a large scale. According to the U.S. Treasury Department's data on international capital flows, foreign funds bought approximately $24 billion worth of U.S. stocks in February, far exceeding the outflow of $13 billion in January, and also bought about $120 billion worth of U.S. bonds. Japanese data also shows that after a slight net selling of $5 billion in February, Japanese investors bought $13 billion and $14 billion worth of foreign stocks in March and early April, respectively. "We believe that most of the selling of U.S. stocks this year is being driven by equity-focused hedge funds, including quantitative and discretionary long-short equity hedge funds," J.P. Morgan pointed out in the report, and not by foreign funds dumping stocks. J.P. Morgan estimates that these investors have sold approximately $750 billion worth of stocks so far this year. Another key driver is momentum-following hedge funds, such as CTAs, which are liquidating long positions held since mid-February and shifting to short positions in early April, with estimated sales of around $450 billion. The report states: The selling pressure from these hedge funds is also evident in U.S. stock index futures, particularly in S&P 500 and Nasdaq 100 futures contracts. In addition, short interest in the S&P 500 ETF has significantly increased since the beginning of 2025, and short interest in small-cap stocks in the S&P index has also significantly risen, indicating that hedge funds play a key role in the adjustment of the U.S. stock market. "We believe that part (but obviously not all) of hedge funds' selling of U.S. stocks since the beginning of the year is due to rotation into European and Chinese stocks. However, the behavior of hedge funds selling U.S. stocks for most of this year may reflect a large-scale reduction in risk exposure rather than a rotation into stocks in other regions," the report states. Foreign fund inflows have been unstable, with retail investors being the key factor supporting U.S. stocks Contrary to hedge funds, U.S. retail investors continue to buy U.S. stock ETFs, with monthly net purchases remaining at around $50 billion, with almost no interruption. However, the biggest impact on purchases this year relative to assets under management (AUM) has been on European stock ETFs (13% of AUM) and gold ETFs (18% of AUM). The J.P. Morgan report points out that the continued buying by retail investors is an important support factor for the U.S. stock market. Historically, as the U.S. dollar is a major global reserve currency, foreign funds have long invested their savings in the U.S., with their holdings of U.S. corporate stocks increasing. However, foreign fund inflows have been quite unstable, with outflows occurring in 2013, 2015-2016, 2019, and 2021/22. Analysts emphasized: Even if international investors start selling U.S. stocks, if domestic investors, especially retail investors, continue to buy, it does not necessarily mean that U.S. stocks will underperform. Based on data from the past decade or so, the average outflow of foreign funds from U.S. stocks is about 0.3% of outstanding shares of stock or 0.7% of U.S. GDP, which is approximately $200-$300 billion. This article is reproduced from "Wall Street" with GMTEight editing: Lifu.