Hedge Funds Rush to Buy Stocks on S&P 500’s Momentum

Some previously steadfast bears are showing signs of giving in after a seven-month advance put the S&P 500 on the edge of a key chart line.

Hedge funds that make both bullish and bearish equity wagers have snapped up US shares for two straight weeks, with total purchases reaching the fastest pace since October, data compiled by Goldman Sachs Group Inc.’s prime brokerage unit show. The binge followed persistent selling in the previous five weeks.

At Morgan Stanley, clients last week boosted their net leverage — a measure of risk appetite that takes into account long versus short positions — to the highest level in 2023.

Resolve among bears is weakening after a $3 trillion equity rally this year defied everything from banking turmoil to falling profits and now a potential US default. A growing fear of missing out on gains may be leading to a reconsideration of defensive positioning that some have argued set the stage for the bounce that has lifted equities since October.

“Risk managers at big institutional firms are saying, ‘Look, the markets are going up, and you can’t sit around and do nothing, you have to participate,’” said Quincy Krosby, chief global strategist at LPL Financial. “The cost of missing out may be just too high. There’s this optimism that the Fed is either finished or almost done with its rate-hiking cycle, then there’s the notion that the recession could be pushed out.”

US Weighted 1D Equity