Morgan Stanley's Nick Savone says hedge funds have pulled back from the AI trade while retail investors have been buying Nvidia. The S&P 500 still rose 2.5% in the following week.
According to Morgan Stanley's Nick Savone, hedge funds have pulled back hard from the AI trade, while retail investors have been aggressively buying Nvidia. Professionals and individual investors are reading the same market and reaching opposite conclusions.
Hedge funds de-risk after a tech momentum crash
Savone was assessing the damage from what he described as a record 70% tech momentum crash. Hedge funds responded by de-risking, and he put their net leverage at the 0th percentile of the past year.
Net leverage measures how much market exposure funds carry after offsetting long bets against short bets. At the 0th percentile, funds are running lighter exposure than at any other point in the past twelve months. Savone also framed the AI trade as being at mile 20 of the marathon.
Retail keeps buying Nvidia
While institutions trimmed exposure, individual investors went the other direction. Savone's read is that retail traders were heavy buyers of Nvidia.
Nvidia had been Morgan Stanley's top semiconductor pick in early October, with a $300 price target. The stock then fell more than 25%, and the research indicates Nvidia lost the top-pick slot in November.
The S&P 500 bounces anyway
The broader market did not buckle under the hedge fund selling. The S&P 500 rose 2.5% in the week following Savone's commentary, which snapped a four-week losing streak.
The research summary suggests retail demand could help establish a floor under certain stocks while institutions move cautiously. It also flags the possibility of a rebound if institutional sentiment stabilizes and rotates back toward tech.
Positioning data is the next signal: if hedge fund net leverage climbs from its yearly low, it would suggest professionals are rejoining the trade.
Source: Crypto Briefing
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