Barclays turns tactically bullish on US stocks for the first time since March; recent selloff has created conditions for a short-term rebound.

As investors sharply cut equity positions and market volatility pressures eased somewhat, Barclays' trading desk turned tactically bullish on US stocks for the first time since mid-March this year. The bank believes the recent market selloff has created favorable conditions for a short-term rebound in US equities. Based on historical data from the past decade, the S&P 500 has risen an average of about 8% within two months after similar buy signals appeared. Barclays' market timing indicator (BETI) has latest issued a buy signal for equities. Since late May, the indicator had been in risk-off mode most of the time, and this marks the first time since the Iran war broke out in mid-March that the model has shown favorable upside conditions for US stocks. According to Barclays traders, the indicator's historical prediction success rate over the past decade is as high as 95%. Over the past two weeks, the US equity market has experienced a particularly difficult period. Investors have faced not only uncertainty from changes in the US domestic political landscape but also growing concerns over the outlook for artificial intelligence (AI) investment. Last week, as Democrats won a sweeping victory in the US midterm elections, market worries about AI-related investment prospects intensified further, and US stocks posted their largest weekly decline since April 2025. This week, management changes at NVIDIA Corporation (NVDA.US) added new uncertainty to the market, keeping investors continuously on edge and putting further pressure on a US equity market that had previously relied heavily on a handful of large technology stocks to drive gains. However, Barclays stressed that its bullish view on US stocks is mainly based on short-term trading opportunities rather than a reassessment of the market's fundamental outlook. Alex Altmann, Barclays' Global Head of Equity Tactical Strategy, said in a note to clients: "We are fully aware of the challenges facing the current market environment. This view is entirely based on expectations of a tactical rebound and does not yet mean that our judgment on any of the market headwinds discussed over the past few months has fundamentally changed. It is precisely these factors that have kept us cautious since late May." The main basis for Barclays' bullish signal this time is the significant adjustment in investor positioning recently, especially among systematic investment strategies that rely on technical indicators rather than fundamental factors for trading. Barclays data show that the equity risk exposure of commodity trading advisor (CTA) funds has fallen to the 8th percentile, while another popular investment strategy volatility-control funds has seen its equity risk exposure drop to the 1st percentile. Volatility-control funds typically reduce equity holdings when market volatility rises in order to maintain a predetermined risk level. Last week, the Cboe Global Markets Inc Volatility Index (VIX), known as Wall Street's "fear gauge," surged to as high as 28 at one point, prompting related funds to further cut equity positions. As the equity positions of these systematic investment strategies fall to extremely low levels, once market volatility subsides and related funds rebuild equity holdings, this could provide momentum for a US equity rebound. Seasonal factors may also provide additional support for a short-term rally in US stocks. Barclays noted that November has historically been one of the stronger months for US equities. Over the past decade, the S&P 500 has gained an average of 4% in November. However, the bank also cautioned that after a difficult investment period, some fund managers may be reluctant to significantly increase risk exposure again as the year-end approaches. Data show that overall hedge fund long equity risk exposure has fallen to the 7th percentile over the past year, reflecting relatively low equity positioning among institutional investors. Other market indicators also suggest that previously excessive optimism has been partly digested in the recent selloff. Although retail investors have continued to buy stocks recently, Barclays' gauge of stock market euphoria remains at a low level. It is worth noting that Barclays does not intend to maintain this tactical bullish stance for the long term. The bank said that if the market achieves about two-thirds of the expected gain in the short term that is, if the S&P 500 rises 5% to 6% in November it would consider exiting the related bullish positions. Altmann noted that the traditional year-end "Santa Claus rally" has in recent years increasingly shifted earlier into November. This means that even if US stocks stage a rebound this month, they may still face renewed downward pressure once December begins. At that point, declining year-end market liquidity and uncertainty surrounding Federal Reserve monetary policy could once again weigh on equities.