Everyone has an opinion on trading stocks. Now, there is an unusual difference in the market, as distinct as the Man versus machine.
According to Parag, a strategist at Parag, computer-guided traders do not see this bullishness from stocks in early 2020 (in the depths of the Kuved pandemic). German Bank Ag.
These two groups look at different tips to form their opinions, so they are not shocked to see the market differently. Although computer-driven fast money volumes use system strategies based on momentum and volatility signals, disposable monetary managers are individuals who look at economic and income trends to guide their actions.
Still, this disagreement is rare and historically, it won’t last long.
“Discussion investors are waiting to pay for something, whether it’s slowing growth due to tariffs or a surge in inflation in the second half of the year,” he said. “As data flow, if the markets are sold with fear of growth, or the economy will remain resilient, their concerns will prove to be correct, in which case discretionary managers may start to remove stock exposure to the economy.”
Wall Street offers many confident predictions, but the reality is that no one knows what will happen to President Donald Trump’s trade agenda or the Fed’s interest rate policy.
As the S&P 500 hits its all-time high, professional investors aren’t sticking with finding out. According to data compiled by Deutsche Bank, they have shifted their equity exposure from neutral to underweight for the week ending August 1 to keep uncertainty about global trade, corporate revenues and economic growth.
“No one wants to buy stocks with higher prices in the record, so some are praying for any sell-off as an excuse to buy,” said Frank Monkam, head of macro trading at Buffalo Bayu Commodity.
Chasing power
However, trend-focused algorithm funds are chasing this momentum. They were lured into a rave after cutting to the bones in the spring, and in recent months their return rate cleared the way back as the S&P 500 dropped nearly 30% from its April lows. Deutsche Bank data shows that the system’s long-term equity positions were the highest since January 2020 for the entire week ended August 1.
The difference is the basis of a tug of war between technology and fundamental forces, with the longest tranquil streak released in July’s two years, and the S&P 500 fell into strict range.
The CBOE Volatility Index (or VIX) measures the volatility of benchmark U.S. stock futures through non-joint options, ending at 15.15 on Friday, close to its lowest level since February. VVIX, which measures volatility in volatility, declined for the third time in four weeks.
“The rubber band can only be extended before grabbing,” said Colton Loder, head of alternative investment firm Cohalo. “So, when there is a systematic crowding like now, the likelihood of a mean reverse sell-off is higher.”
This collective accumulation occurs in regular trade, taking place with a computer-driven strategy. For example, in early 2023, the S&P 500 fell by 19% in 2022 until it soared during regional bank harassment in March of that year. Fast currency traders put stocks on record after a breakthrough in trade negotiations between Washington and Beijing in late 2019.
However, this time is when this is expected to last for weeks, not months. He said that computer-based strategies to increase volatility may also begin to relax their positions if traders can start selling sales to cope with weaker growth or soften a company’s revenue trend.
Additionally, fast-currency investors may be fully exposed to U.S. stocks by September, according to Scott Rubner of Citadel Securities, which could prompt them to sell stocks as they are vulnerable to downside market shocks.
CTA risk
Lord said that given how the system funds work, sales may start with commodity trading consultants or CTAs, thus relaxing the extreme positioning. He added that this would increase the risk of a sharp reversal in the stock market, although a large sell-off is required to make lasting volatility soar.
CTA has been a continuous stock buyer, the US $50 billion stock, putting it at the 92nd percentile of historical exposure. Goldman Sachs Group Inc. However, the S&P 500 needs to violate 6,100, down about 4.5% from Friday’s closed index, allowing CTA to start dumping stocks. UBS Group Ag.
So the question is, due to the extreme levels of uncertainty, quantum positioning to the bullish side and pressure building of the stock market, can this really last?
“Things are starting to feel the top of the mountain,” Grinakov said, adding that in the short term, the stock’s upside room “maybe exhausted”. “It’s a little worrying, but it hasn’t caused a wake-up call.”
More importantly, according to Cohalo’s Loder, any system sales pullback could create an opportunity for discretionary asset managers who missed the earnings this year to re-enter the market and become buyers and avoid a more serious plunge.
“Whatever triggers the next next cumulative is a mystery,” he said. “But when this happens, the exposure and positioning of the asset managers are so light that it will add fuel to the ‘buy’ mindset and prevent greater sales.”
