An equity market rally since the US election has provided a fillip for many hedge funds and other investors who had bet October’s selloff was a buying opportunity.
The S&P 500 dropped 7.5 per cent in the final three weeks of October, but has since bounced back 5 per cent, including a strong rally on Wednesday, even though no clear winner has yet emerged from the election.
Goldman Sachs said in a note to clients at the start of this week, just before the election, that hedge funds had bought the dip in US mega caps, snapping up communications services, consumer discretionary and information technology stocks.
Funds’ net long positions — their bets on rising prices minus their bets on falling prices — were close to their highest level in almost three years, according to the bank. Such positioning indicates bullishness about the direction of stocks.
Ilan Chaitowitz, part of a team running $3bn at Nomura Asset Management and co-manager of its Global High Conviction fund, made money on Wednesday after using the pre-election selloff as a buying opportunity similar to the coronavirus-induced market slump in March.
He said he “would not be surprised” to see the rebound in technology and healthcare stocks continue. “With Republicans probably retaining the Senate, there will be checks in place to prevent the most extreme proposals” from Democrats that could affect these sectors, he said.