But as the pile of cash on the sidelines keeps growing in the face of a resilient S&P 500 Index, which has soared 14% in a month since bottoming on April 8, Wall Street is debating whether, and when, to jump back in.
“This is so exhausting,” said Ken Mahoney CEO of Mahoney Asset Management. “There’s no playbook on how to trade this.”
The reason is cut-to-the-bone positioning has cleared the path for many of them to return as buyers. At this point, there’s little standing in the way of short-term stock market gains as traders have lifted their bearish hedges, systematic funds are beginning to buy and retail investors are chasing everything from Big Tech to industrials.
“This is an unloved rally,” Colton Loder, managing principal of the alternative investment firm Cohalo, said by phone. “But just based on positioning being cut so much alone, this will likely induce buying in the coming weeks no matter what trade or monetary policy news comes.”
In addition, the S&P 500 Index’s one-month realized volatility fell 17 points Thursday due to the index’s historic 9.5% rally on April 9 coming out of the one-month calculation, according to Tier 1 Alpha. A decline in realized volatility will cause a rapid normalization in risk premium models, enabling those investors to increase their exposure.
“This isn’t about taking on more risk,” Mahoney said. “We’re building up cash to use when we’re forced to buy rallies like now. But we’re still cautious.”
The hesitation among fund managers comes as they debate when to reprice the extent to which the Fed may be able to cut rates this year. Wall Street had been expecting the central bank to cut next month, but Fed Chair Jerome Powell and other policymakers insist they’re waiting for more clarity from economic data.
“When turbulence creeps up like this, it’s a lot harder to put on trades, but I love it,” Rice said by phone. “The constant back-and-forth on Trump’s trade threats can make things so difficult, but I’m still buying.”
Other equity strategies, however, remain more neutral.
“You can’t always chase these rallies,” warned Stephanie Lang, chief investment officer at wealth management firm Homrich Berg, who favors defensive companies like health care and utilities on improving profit outlooks.
In March, the S&P 500 broke below its bullish trend line that began when the most recent bull market started in October 2022. To recoup that, the S&P 500 would need to cross back above 6,000, which Cohalo’s Loder sees as a far more difficult hurdle to clear.
And then there are market watchers like Dennis Debusschere, founder of 22V Research, who doesn’t want to chase what he sees as a fading rally. Since tariffs remain a significant issue and stock market internals remain weak, his firm is pushing shorts in the riskiest corners, like small-capitalization companies.
“We’re just trying to get through all of this intact,” Mahoney said. “Anything can turn on a dime with a tweet.”
