Equity markets may be setting up for a year-end rebound after hedge funds adopted an unexpectedly cautious stance in October, according to JPMorgan.
In a recent note, analysts led by Nikolaos Panigirtzoglou said performance data from monthly reporting hedge funds showed a sharp drop in equity exposure among Equity Long/Short funds. Their positioning fell to its lowest level in more than a year.
JPMorgan also noted that Equity Quant hedge funds, which usually stay near market-neutral, held a relatively low equity beta in October.
The analysts said this cautious positioning leaves Equity Long/Short hedge funds with room to support a broader market recovery heading into the end of the year.
JPMorgan’s report also examined the shifting role of retail investors in equity markets.
Retail participation surged during the pandemic, doubling to about 25% of U.S. cash equity trading and around 50% of zero-day-to-expiry options trading. According to the bank, that surge has since leveled off, returning closer to normal levels.
Still, retail investors remain a major force in overall market flows. JPMorgan said their influence comes less from frequent trading and more from their increasing share of end-investor activity.
