Wall Street's biggest trading desks are urging clients to increase exposure to US stocks, betting that lackluster investor positioning ahead of the midterm elections has created room for a year-end rally. Big-tech stocks powered a broad advance Wednesday, after Democrats won control of both chambers of Congress and President Donald Trump said he would accept the election results. Investors had been bracing for the opposite reaction, with the artificial intelligence buildout expected to face more regulatory scrutiny under a Democratic Congress.
Hedge funds cut exposure to US equities and reloaded bearish bets leading up to the November vote, pushing stock-market short positions close to a five-year high, while systematic investors also trimmed their exposure. That positioning reset is now emerging as one of Wall Street's main arguments for a recovery. "It's not just a reversal of what we saw in October," said Max Kettner, chief multiasset strategist at HSBC. "It's basically just bidding up everything."
The rally follows a bruising October for equity investors, who faced disappointing technology earnings and election uncertainty. Those concerns pushed the tech-heavy Nasdaq 100 into its third correction of the year earlier this week. At JPMorgan Chase & Co., strategists remain tactically bullish, saying the recent tech selloff could create an opportunity for a near-term rebound. They favor a barbell approach combining technology and cyclical shares, with a heavier allocation to cyclicals.
Nomura's Charlie Mc Elligott said Wednesday's rally partly reflects investors unwinding hedges after the election passed without a major market shock. The VIX Index, known as Wall Street's fear gauge, fell by the most since April 2025 on Wednesday. Citadel Securities' Scott Rubner also sees room for a year-end rally, writing that "the path of least resistance for US equities is higher into year-end." Retail investors have been net buyers of US equities for 22 consecutive sessions, accumulating nearly $33 billion.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing