Record outflow from financial sector, surge in ETF short selling I saw some information today and feel that the market has entered a defensive mode. The first chart shows that the outflow of funds from the financial sector has reached a near extreme level. The second chart shows a significant increase in short selling traffic for US listed ETFs around March 12th. Based on the recent cross asset fund flow, this judgment is not just an emotional amplification. As of the week ending March 11th, global stock funds had a net outflow of approximately $7.05 billion, the largest weekly outflow since mid December 2025. Among industry funds, finance and healthcare were the main selling directions, while high-yield bond funds also experienced the largest weekly outflow since April 2025. Money market funds continued to achieve net inflows, indicating that investors may have turned to defense. Talking to people means entering a safe haven state from stocks, credit to cash management. The February CPI was released on March 11th, and on March 11th and 12th, USTR launched two consecutive rounds of Section 301 investigations, targeting manufacturing overcapacity and forced labor related issues. This means that the market is facing inflation data, trade policy upgrades, and geopolitical conflicts pushing up oil prices at the same time. Goldman Sachs also postponed its first interest rate cut expectation from June to September during this window, citing that the Middle East conflict raised inflation risks, and Brent subsequently rose above $100. In this context, the short selling flow of ETFs increased significantly around March 12th, more like institutions doing tail end hedging. This also indicates that some funds believe that known risks have not been fully priced by the market. The second picture also has an easily overlooked detail, that is, the short selling traffic of ETFs under Prime Book is essentially closer to hedge fund behavior, rather than individual investors or traditional mutual fund behavior. According to Goldman Sachs' Prime Brokerage data, the total leverage of hedge funds had risen to a five-year high of 307% in mid February. The recent increase of 8.3% in short positions of US ETFs per week is the second largest jump in the past five years. The meaning of this combination is that ETFs are not only the most convenient risk hedging tool, but also the first liquidity tool to be used in high leverage environments. Of course, relying solely on this chart cannot prove 100% that all newly added short positions are purely directional bets, and some of them may also be index hedging of individual stock long portfolios. But when the traffic has reached such an extreme level, it at least indicates that the institution is not slowly adjusting its holdings, but is rapidly reducing risks. More importantly, the abandonment of the financial sector and the pullback of technology stocks are different. Many times, technology stocks are short on valuation and sentiment, and positive news may be quickly squeezed out. However, if financial stocks are short on balance sheets, financing conditions, private credit exposure, and potential credit losses, the threshold for falsification will be much higher. In addition, the total leverage of hedge funds has already risen to a five-year high, and ETFs are the most convenient liquidity hedging tool. Therefore, once the volatility continues to increase, actively reducing positions and passively reducing risks can easily form positive feedback. Recently, European bank stocks have also weakened in sync with the impact of oil prices, indicating that this is not necessarily just a domestic issue in the United States, but more like an overall risk increase in the financial system of developed markets. So looking at these two charts together, combined with recent macroeconomic events and cross asset flows, in my personal opinion, this does not necessarily mean that the market will continue to collapse, but that the market has shifted from a growth and valuation narrative to an inflation, credit, and liquidity narrative. The Iran conflict has pushed up oil prices, which in turn has raised inflation expectations. Inflation risks have pushed the path of interest rate cuts back, and once interest rates remain high for a longer period of time, the financial sector will first face issues with its balance sheet and credit chain. At this point, the record outflows from the financial sector and the surge in ETF short selling should not be understood as a decrease in ordinary risk appetite, but rather as a predetermined defensive attitude of high leverage funds towards tail risks of "stagflation+credit contraction". Overall, I feel that there are risks at present, although many colleagues believe that the risks are not very high, especially in the credit field where there are no signs of a thunderstorm, institutions have begun to respond to potential risks. Bitget VIP， Lower rates and more generous benefits