According to the WiseMoney APP, as geopolitical risks intensify and concerns about a global economic slowdown mount, hedge funds are rapidly unwinding their bets on industrial stocks and turning to the sector of commodities markets such as energy and materials.

According to the report from the bulk brokerage department of Goldman Sachs, last week, the industrial sector was the most net sold sector of US stocks. What's more, Vincent Lin wrote in his client report that in dollar terms, the group's risk closure totaled its highest level ever over the two weeks since July 11th, indicating a 'surrendering behavior' in the sector.

Market observers say that there are many different types of companies within the industrial sector, making it difficult to identify a clear direction behind the sell-off. However, some believe that the upcoming US presidential election has increased the risk of policy changes, particularly on trade and tariffs, which many large global businesses in the industry are sensitive to.

Jonathan Caplis, CEO of hedge fund research firm PivotalPath, said: 'Prior to the uncertain election, some selling is profit-taking. Investors are concerned that if the Trump administration takes office, it could bring about inflationary pressure and affect long-term interest rates.'

So far, the performance of industrial stocks in Q2 is mixed. American Airlines (AAL.US) and United Parcel Service (UPS.US) have lowered their earnings forecasts for this year, sending worrying signals of weak demand. On the other hand, General Electric (GE.US) announced strong earnings due to strong demand for engines and maintenance services.

Hedge funds have been selling industrial stocks since May, making it one of the industries with the most nominal net sales in Q2.

Although the S&P 500 Industrial Index, which tracks large industrial stocks, has underperformed the S&P 500 Index and the Nasdaq 100 Index, which focuses on technology stocks, the performance of industrial stocks has far exceeded these two benchmarks in the past month. The S&P Industrial Index rose about 3.7%, while the S&P 500 rose about 0.5% and the Nasdaq 100 fell about 2.4%. The Vanguard Industrials ETF saw net assets outflows for two consecutive months in May and June, and will see inflows in July.

Nicholas Colas, co-founder of DataTrek Research, said: 'The industrial sector is now like a big salad with all sorts of different names in its subcategories.' 'It's hard to say what macro forces might be driving hedge fund sentiment aside from a broad view of factors like the upcoming election.'

Investors in the sector are currently waiting for the quarterly performance of construction and mining equipment giant Caterpillar (CAT.US) next week, which is seen as a bellwether for the global industrial economy as well as trade relations between China and India.

Meanwhile, hedge funds continue to move toward stocks that are more sensitive to commodities, with energy and materials being the most net purchased US sectors over the past four weeks. Chemicals, oil, natural gas, and consumable fuels, as well as energy equipment and services, were the most net purchased sub-industries this week.

However, Adam Parker, founder of Trivariate Research, expressed a different opinion in an interview, saying that this is just more rotation rather than a widespread sell-off in the industrial sector.