JPMorgan sees stock market boost as macro funds return

Investing.com -- JPMorgan is predicting a near-term boost to equity markets as macro hedge funds are forced to rebuild their stock exposures following the sharp pullback in March, with large U.S. technology stocks seen as the biggest potential beneficiaries.

Analyst Nikolaos Panigirtzoglou wrote in a note to clients that the equity beta of macro hedge funds collapsed in March, leaving the category poorly positioned to participate in April's rebound.

As a result, JPMorgan argued these funds face pressure to re-enter the market. "Macro hedge funds are likely to be induced to rebuild their equity exposures over the coming weeks, propelling the equity market, especially if the current ceasefire leads to a more lasting agreement between Iran and the U.S.," Panigirtzoglou wrote.

Within equities, JPMorgan highlighted elevated short interest in the QQQ ETF as a source of additional upside.

"The more elevated short interest for the QQQ ETF implies more room for short covering and thus greater upside for large U.S. tech stocks," the firm said, noting that technology and communications stocks suffered significant outflows in March and early April while only energy, industrials and utilities saw inflows during that period.

On market structure, JPMorgan flagged that liquidity in U.S., European and Japanese equity markets has deteriorated to levels last seen on Liberation Day, while Brent and WTI futures liquidity has fallen to 2022 lows.

Gold futures liquidity has remained impaired since a late January selloff, hitting its lowest level since the pandemic.

Hedge funds overall lost around 2.5% in March, erasing most of their January and February gains, with Event Driven and Equity Long/Short funds ending the first quarter in negative territory.

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