Barclays sees “macro tantrums, micro bulls” as equity positioning diverges

Investing.com -- Global equity markets are caught between institutional caution and retail exuberance, with hedge funds trimming exposure while smaller investors pile back into stocks, according to Barclays.

The bank describes this as a clash of “macro tantrums and micro bulls,” where tariffs and credit worries are colliding with persistent AI-driven retail bullishness.

Equity exposure among global macro hedge funds and long-only funds remains near the highest level in over a year despite some de-risking after renewed tariff tensions and credit concerns.

At the same time, Barclays notes that S&P 500 short interest has climbed to its highest since 2016, showing that “rising skepticism” coexists with record equity levels.

Retail investors have re-engaged since the September rate cut, pouring money back into U.S. and emerging market equities while cutting cash allocations.

“An historical divergence of downside vs upside relative pricing has opened up between equity index and single stock levels,” with S&P index skew steepening sharply even as single-stock skew flattened, strategists led by Venu Krishna said in a note.

The team attributes part of this to technical factors such as sharp VIX swings on modest S&P moves and a spike in intraday correlation, which it links to leveraged exchange-traded product (ETP) flows.

They add that options markets are pricing similar risk premiums for the upcoming FOMC and Trump–Xi events, implying investors “are not anticipating a breakthrough on trade war resolution.”

Systematic strategies remain largely steady. Volatility (vol) Control funds experienced a sharp one-day de-risking during what Barclays calls a “historic vol shock,” but are now “symmetrically poised” to re-risk if volatility eases.

CTAs maintain broad equity longs, led by U.K. and European markets, though Barclays notes that the DAX “appears most vulnerable to equity unwinds.” The strategists add that CTAs have turned short oil amid “rising supply and softening global demand.”

They have also increased U.S. Treasury exposure while staying short non-U.S. bonds. Risk parity funds are set to cut equities and trim commodities while adding to bonds, strategists said.

Overall, Barclays sees a market where institutional caution and retail optimism coexist, with index-level hedging contrasting sharply against continued appetite for single-stock upside.