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Investing.com - Equity exposure is at its highest level in more than a year among global hedge funds focused on broad market movements and other funds specializing in long-term investments, according to estimates from Barclays.
In September, hopes for U.S. economic resilience and resurgent fervor around massive spending on artificial intelligence propelled equities on Wall Street to all-time peaks.
Global macro hedge funds briefly grew their positions in stocks to multi-year highs during the month, while equity exposure in so-called "long-only funds" -- which buy and hold securities with the expectation that their value will increase over time -- continued to expand, analysts at Barclays said.
But volatility has returned to stock markets in October, due partially to worries over renewed trade fight between the U.S. and China. In this latest round of tensions, President Donald Trump has threatened to slap triple-digit tariffs on China after Beijing tightened its controls on exports of crucial rare earth materials integral to a number of industries.
Last week, some regional U.S. banks also flagged bad loans and fraud issues, sparking fears around the credit health of smaller American lenders. Banking stocks widely fell on the news.
Hovering around all of this have been emerging concerns that rampant speculation and dealmaking around AI could be fueling a bubble in a sector that has underpinned stock gains for months.
Against this backdrop, Wall Street’s most watched gauge of investor anxiety has creeped up, at one point touching its highest mark since April last week.
"[T]he combination of renewed tariff tensions, rising credit concerns within private markets and among the regional banks, and AI bubble chatter spurred institutions to partially unwind some of their recent buy-up," the Barclays analysts including Venu Krishna and Japinder Chawla wrote in a note on Tuesday.
Yet long positions remain elevated, with markets are now looking to the third-quarter corporate earnings season to establish a "fundamental base" for the rally in stocks following the recent ructions, they suggested. Analysts are currently anticipating that S&P 500 earnings during the quarter will jump by 9.3% versus a year ago on aggregate, according to Reuters.