Hedge funds are no longer buying dips ahead of macroeconomic catalysts, Barclays strategists revealed in a recent note.
They note that while there has been some reactivity in equity markets over the past month, discretionary equity exposure has not returned to the high levels seen before the risk-off period in August. Long-only funds have started to regroup their positions, but their equity exposure remains close to 2020-21 lows.
Meanwhile, global macros and multi-strategy hedge funds were buyers during the summer risk-reduction period “but have taken a breather since then,” the note said.
“Short-term risks, including seasonality (the SPX historically tends to show larger declines in September/October) and uncertainty surrounding the US election appear to be keeping investors on the sidelines,” he adds.
According to Barclays, the equity positioning does not appear to be overstretched and there is potential for equities to become more attractive towards the end of the year, particularly after the US election uncertainty is resolved.
The house notes that despite stocks reaching new highs, macroeconomic fundamentals and earnings continue to be supportive. There is a growing expectation of a ‘Goldilocks’ soft landing scenario, bolstered by strong US macroeconomic and labor data, easing inflation and an aggressive 50 basis point interest rate cut by the US Federal Reserve.
The U.S. labor market showed strength in September, with nonfarm payrolls rising 254,000, well above expectations of 150,000 and a revised 159,000 in August, entertaining investor concerns about the health of the economy. The unemployment rate fell slightly to 4.1%, signaling a robust employment environment.
In contrast to stocks, long-term bond positioning appears fairly extensive, indicating that bond investors remain cautious about the economic outlook.
Elsewhere, the policy divergence between the Bank of Japan and the US Federal Reserve led speculators to become increasingly bullish on the Japanese yen.
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Reference;
Karaahmetovic, V. (2024) Hedge funds no longer dip buyers ahead of macro catalysts: Barclays By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/hedge-funds-no-longer-dip-buyers-ahead-of-macro-catalysts-barclays-3653195 (Accessed: 8 October 2024).
