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A significant market sentiment shift is underway as investors move from defensive hedging to bullish positioning, according to Nomura’s Charlie McElligott.
With the S&P 500 nearing all-time highs, volatility-controlled funds are expected to purchase approximately $40 billion in S&P 500 futures as market volatility has dramatically decreased, with five-day realized volatility dropping from 22.2 to 8.7.
This repositioning has driven increased interest in Big Tech, AI, semiconductors, small-caps, and gold.
However, McElligott warns that aggressive positioning by these funds could lead to market instability rather than steady gains.
