(Bloomberg) — Stock bears are suddenly getting crushed. Once-dependable momentum trades are misfiring. Inflation-lashed bonds are bouncing back.
Most Read from Bloomberg
After another expectations-busting week on Wall Street, sharp market reversals are baffling real-money veterans, retail speculators and quants alike.
Big data surprises, including a blockbuster jobs report and a softer-than-expected July consumer price reading, have caught a heavily hedged investor base off guard, as the S&P 500 Index enjoys a nearly 17% rally from the June bear-market low.
Economic angst and speculation that price pressures are peaking have helped global bonds climb almost 4% from their mid-June nadir, while once-hot stock shorts are backfiring.
Put another way, every investing trend that defined the wild first-half is staging a messy reversal in the latest twist of this exhausting year.
With Federal Reserve officials continuing to issue hawkish missives, playing it dumb — by sitting in cash or long-dollar positions — may look like a smart move for now.
“It’s been a volatile year for stocks and bonds — first to the downside, now to the upside,” said Willie Delwiche, investment strategist at All Star Charts. “Moving to the sidelines and letting the volatility play out is often an overlooked and under appreciated option.”
Investors appear to be betting that the Fed will pivot to a slower pace of interest-rate increases. That’s hurting risk-off trades and forcing hedge funds to cover short wagers.
Net-short leveraged positions in S&P 500 futures reached the most bearish since 2015 in the run up to the recent rally (they’ve since started to be unwound), according to data from the Commodity Futures Trading Commission. Meanwhile a basket of the most-shorted stocks tracked by Goldman Sachs is up almost 39% so far this quarter.
Retail investors, who watched their post-pandemic profits wiped out this year and dashed out of stocks in June, are rushing back. Share purchases from small-fry traders jumped 62% during the week through Tuesday, industry data compiled…