Key Takeaways
- • Hedge funds cut equity exposure and raised short positions ahead of the US midterm elections, pushing bearish bets close to a five-year high, per Bloomberg.
- • US equities rebounded after the Democratic Party won both chambers of Congress, with the VIX recording its largest single-day decline since April 2025.
- • JPMorgan's US Market Intelligence team remains tactically bullish, expecting managers to favour technology and cyclical equities as confidence returns.
- • Citadel Securities' Scott Rubner cites resilient earnings, reduced political uncertainty and significant capacity for institutions to rebuild risk exposure.
- • Retail investors bought nearly $33bn of US equities over 22 consecutive sessions since 5 October, while systematic fund positioning fell to its lowest level since March.
Summary
Wall Street trading desks are forecasting a potential year-end rally in US equities as hedge funds and systematic investors rebuild exposure following October's sharp deleveraging, according to a report by Bloomberg. Bearish positioning is seen as creating scope for further market gains.
Hedge funds reduced equity exposure and increased short positions ahead of the US midterm elections, pushing bearish bets close to a five-year high. Systematic strategies also cut allocations, leaving institutional positioning at subdued levels after a difficult October marked by technology sector losses and heightened volatility.
US equities rebounded on Wednesday following the Democratic Party's victory in both chambers of Congress, with technology shares leading gains and volatility measures falling sharply. The VIX Index recorded its largest single-day decline since April 2025 as investors unwound protective positions established ahead of the election.
JPMorgan's US Market Intelligence team remains tactically bullish, arguing that the liquidation of AI-related investments and broader hedge fund deleveraging have created near-term recovery opportunities. The bank expects managers to become more selective, favouring a mix of technology and cyclical equities. Citadel Securities strategist Scott Rubner also sees scope for further gains, citing resilient corporate earnings, reduced political uncertainty and capacity for institutional investors to rebuild risk. Retail investors have bought nearly $33bn in US equities over 22 consecutive trading sessions since 5 October, while systematic fund positioning has fallen to its lowest level since March.
Hedge funds may require several weeks of market stability before substantially increasing technology exposure. Investors are also monitoring the anticipated IPO of AI developer Anthropic, which some strategists believe could test institutional appetite for technology investments following October's correction.
Hedge funds reduced equity exposure and increased short positions ahead of the US midterm elections, pushing bearish bets close to a five-year high. Systematic strategies also cut allocations, leaving institutional positioning at subdued levels after a difficult October marked by technology sector losses and heightened volatility.
US equities rebounded on Wednesday following the Democratic Party's victory in both chambers of Congress, with technology shares leading gains and volatility measures falling sharply. The VIX Index recorded its largest single-day decline since April 2025 as investors unwound protective positions established ahead of the election.
JPMorgan's US Market Intelligence team remains tactically bullish, arguing that the liquidation of AI-related investments and broader hedge fund deleveraging have created near-term recovery opportunities. The bank expects managers to become more selective, favouring a mix of technology and cyclical equities. Citadel Securities strategist Scott Rubner also sees scope for further gains, citing resilient corporate earnings, reduced political uncertainty and capacity for institutional investors to rebuild risk. Retail investors have bought nearly $33bn in US equities over 22 consecutive trading sessions since 5 October, while systematic fund positioning has fallen to its lowest level since March.
Hedge funds may require several weeks of market stability before substantially increasing technology exposure. Investors are also monitoring the anticipated IPO of AI developer Anthropic, which some strategists believe could test institutional appetite for technology investments following October's correction.
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