Equity Skeptics That Missed Stock Rally May Miss Even More

Equity skeptics obsessed with everything from inflation to pie-in-the-sky earnings estimates have managed to miss a $5 trillion rally being amplified by trends in investor positioning. More pain may be in store for bears should certain signals keep flashing in quant-land.

The issue is the giant pool of systematic funds that moves in and out of the market based on how turbulent prices are. With peace at hand of late amid a four-week rally, so-called volatility-target funds and similar strategies such as risk parity are buying between $2 billion to $4 billion of stocks per day, according to an estimate by JPMorgan Chase & Co.’s Kate Gandolfo.

“That can last perhaps another 100 days if volatility stays low,” Gandolfo wrote in a note, adding options dealers are currently stuck in “long gamma” positions that leave them needing to go against the prevailing equity trend to maintain a neutral market exposure. “Vol could stay contained/supportive of the market.”