Hedge Funds Get Sucked Into Stock Rally Ahead of Inflation Data and Fed Rate Decision

Big money managers are slashing bearish wagers and boosting equity exposure ahead of a week of potentially market-moving news.

Large speculators, mostly hedge funds, trimmed net short positions in S&P 500 e-mini futures from a record high, according to data from the Commodity Futures Trading Commission. The reduction of almost 90,000 contracts over the week through Tuesday ranks among the five biggest episodes of short covering since 2018.

Meanwhile, hedge funds tracked by JPMorgan Chase & Co. saw a spike in net equity purchases that built on the largest four-week buying spree since August. As a result, their net leverage, a measure of risk appetite that takes into account long versus short positions, has jumped to a one-year high.

With inflation data and a Federal Reserve decision in the offing, the buying binge marks a meaningful shift among a cohort of previously steadfast bears whose cautious stance paid off during 2022’s market rout. Skeptics have come under pressure to rethink positioning after the S&P 500 surged more than 20% from its October low.

Money managers “have been forced to grab into exposure to play for a ‘crash-up,’” Charlie McElligott, cross-asset strategist at Nomura Securities International, wrote in a note.

Bears Retreat on Equity Shorts | Net short positions in S&P 500 e-mini futures drop from record high