PremiumMorgan Stanley Quants Warn Market Inflows Starting To Slow, Reveal Favorite Bearish Hedge
The S&P 500 is now up a stunning 25% from the April lows - just three months ago! - but as Morgan Stanley's Quant and Derivative Strategies (QDS) team writes in a note published by group head Chris Metli today, the pace of the rally is slowing, and Tuesday’s soft CPI and positive NVDA news failed to catalyze re-acceleration. At the same time, the market is also quick to shrug off headlines unless they prove to be real – which is smart learned behavior – and equities seem to end higher after every selloff than they were before it started.
That could in part be driven by the fact that Hedge Fund nets remain stubbornly light close to historical medians, or because there is once again virtually no liquidity and it takes very little capital to move prices (higher). The bull case according to Morgan Stanley is that Hedge Funds still need to buy into the rally, and "the market may need to go higher before it can go lower" – but as QDS has previously flagged, passive inflows from retail, systematic, and buybacks are set to slow in the 2nd half of July – which could make the market incrementally more fragile to shocks.