According to a report, Barclays' trading desk has turned tactically bullish on US equities for the first time since mid-March, as investors sharply cut stock exposure and volatility pressures eased. The bank believes the recent market selloff has created favorable conditions for a short-term rebound in US stocks.
Based on historical data from the past decade, the S&P 500 has risen an average of about 8% within two months after similar buy signals appeared. Barclays' market timing indicator (BETI) has just issued a stock buy signal. Since late May, the indicator had been in risk-off mode for most of the time, and this marks the first time since the Iran war broke out in mid-March that the model has shown favorable upside conditions for US equities. According to Barclays traders, the indicator has had a historical success rate of 95% over the past decade.
Over the past two weeks, the US stock market has experienced a particularly difficult period. Investors have faced not only uncertainty from changes in the US domestic political landscape, but also growing concerns about the outlook for artificial intelligence (AI) investment. Last week, as Democrats secured a sweeping victory in the US midterm elections, concerns about AI-related investment prospects intensified further, sending US stocks to their largest weekly decline since April 2025.
This week, management changes at Nvidia (NVDA.US) added fresh uncertainty to the market, keeping investors on edge and putting further pressure on a US stock market that had been heavily reliant on a handful of large technology stocks to drive gains. However, Barclays stressed that its bullish call is primarily based on short-term trading opportunities rather than a reassessment of the market's fundamental outlook.
Alex Altmann, Barclays' global head of equity tactical strategy, said in a note to clients: "We are fully aware of the challenges facing the current market environment. This view is entirely based on expectations of a tactical rebound and does not yet mean that our judgment on any of the market headwinds discussed over the past few months has fundamentally changed. It is precisely these factors that have kept us cautious since late May."
The main basis for Barclays' bullish signal is the significant adjustment in investor positioning recently, especially among systematic investment strategies that rely on technical indicators rather than fundamental factors. The bank's data shows that commodity trading advisor (CTA) funds' equity risk exposure has fallen to the 8th percentile, while another popular investment strategy — volatility control funds — has seen its equity risk exposure drop to just the 1st percentile. Volatility control funds typically reduce stock holdings when market volatility rises in order to maintain predetermined risk levels.
Last week, the CBOE Volatility Index (VIX), known as Wall Street's "fear gauge," surged to as high as 28, prompting these funds to further cut equity positions. With equity positions in these systematic investment strategies falling to extremely low levels, once market volatility subsides and related funds rebuild stock holdings, it could provide momentum for a US stock rebound.
Seasonal factors may also offer additional support for a short-term rally in US stocks. Barclays noted that November has historically been one of the stronger months for US equities. Over the past decade, the S&P 500 has gained an average of 4% in November. However, the bank also cautioned that after a difficult investment period, some fund managers may be reluctant to significantly increase risk exposure as the year-end approaches.
Data shows that overall hedge funds' long equity risk exposure has fallen to the 7th percentile over the past year, reflecting relatively low equity positioning among institutional investors. Other market indicators also suggest that previously excessive optimism has been partly digested during the recent selloff. Although retail investors have continued to buy stocks recently, Barclays' gauge of stock market euphoria remains at low levels.
It is worth noting that Barclays does not intend to maintain this tactically bullish stance for long. The bank said that if the market achieves about two-thirds of the expected gain in the short term — that is, the S&P 500 rises 5% to 6% in November — it would consider exiting the bullish positions. Altmann noted that the traditional year-end "Santa Claus rally" has increasingly shifted into November in recent years. This means that even if US stocks stage a rebound this month, they could face renewed downward pressure once December arrives. At that point, declining year-end market liquidity and uncertainty surrounding Federal Reserve monetary policy could once again weigh on stocks.
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