Reluctant bulls forced to chase the rally

Fear of missing out (FOMO) is causing frustrated bears to become reluctant bulls. That’s according to Barclays, which notes that equity funds are seeing inflows for the first time since the start of the year.

Buying from systematic funds was the main force pushing markets higher in recent months, with sceptical fundamental investors staying on the sidelines. That is changing. Buying has broadened out, with retail sentiment surveys climbing from pessimistic levels and fund managers being forced to chase the rally as bears begin to capitulate.

“Re-risking”, as Barclays puts it, is becoming more widespread. Bearish sentiment has been a tailwind for indices in recent months, with stocks climbing the proverbial wall of worry. That’s no longer the case, but nor is positioning a headwind. Rather, positioning has normalised and risk has become more symmetric.

The rally may still have room to run. High savings and strong employment data means retail investors have “enough ammunition available” to keep chasing the technology rally, says Barclays. Meanwhile, an “ever-delayed” US recession, decent earnings, ongoing excitement over artificial intelligence (AI), and low volatility – the Vix, Wall Street’s volatility index, recently hit its lowest level in over three years – may persuade fund managers to deploy more cash in coming months.