Global hedge funds specializing in macro strategies and long-term investments have reduced some exposure amid recent market turbulence, but their equity positions remain near the highest levels in over a year, according to estimates from Barclays.
In September, growing optimism over U.S. economic strength and renewed enthusiasm surrounding heavy investment in artificial intelligence helped push Wall Street equities to record highs. Barclays analysts noted that global macro hedge funds temporarily lifted their stock exposure to multi-year peaks during that rally, while “long-only funds” — which focus on holding assets expected to appreciate — kept expanding their positions.
However, volatility has reemerged in October. Much of the unease stems from escalating trade tensions between the U.S. and China, after President Donald Trump threatened to impose triple-digit tariffs in response to Beijing’s decision to tighten export controls on critical rare earth materials.
The mood was further shaken by negative signals from some U.S. regional banks, which reported loan losses and fraud-related issues, heightening concerns about the credit health of smaller lenders. Banking stocks sold off broadly on the news.
On top of that, investors are increasingly worried that speculative fervor and aggressive dealmaking in the AI sector could be inflating a bubble that has been central to this year’s market rally. These factors have driven Wall Street’s primary fear gauge higher, touching its highest level since April last week.
“[T]he combination of renewed tariff tensions, rising credit concerns within private markets and among the regional banks, and AI bubble chatter spurred institutions to partially unwind some of their recent buy-up,” wrote Barclays analysts Venu Krishna and Japinder Chawla in a note on Tuesday.
Even so, long positioning remains elevated. Markets are now turning their attention to the third-quarter earnings season to provide a “fundamental base” for further equity gains after recent volatility. Analysts currently expect S&P 500 earnings to rise 9.3% year over year for the quarter, according to Reuters.