Barclays Turns Tactically Bullish on US Stocks for the First Time Since March, Recent Selloff Sets Stage for Short-Term Rebound

According to Zhitong Finance APP, as investors have drastically reduced equity positions and market volatility pressures have eased, Barclays' trading division has turned tactically bullish on US stocks for the first time since mid-March this year. The bank believes that the recent market sell-off has created favorable conditions for a short-term rebound in US stocks. Based on analysis of historical data over the past decade, the S&P 500 Index has risen by an average of about 8% within two months following similar buy signals.

Barclays' market timing indicator (BETI) has recently issued a buy signal for stocks. Since late May, the indicator has mostly remained in risk-off mode, and this is also the first time since the outbreak of the Iran war in mid-March that the model has shown favorable conditions for the US equity market to rise. According to Barclays traders, this indicator has had a historical forecasting success rate of up to 95% over the past decade.

Over the past two weeks, the US equity market has gone through a particularly tough period. Investors have faced uncertainties brought by changes in the domestic political landscape of the United States, as well as growing concerns about the increasingly heated prospects of AI investments.

Last week, with the Democratic Party achieving a sweeping victory in the US midterm elections, concerns about the outlook for AI-related investments intensified, and US stocks posted their largest weekly decline since April 2025. This week, executive changes at Nvidia (NVDA.US) have injected new uncertainty into the market, keeping investors on edge and further weighing on the US equity market, which has previously relied heavily on gains in a few large tech stocks.

However, Barclays emphasizes that this bullish stance on US stocks is mainly based on short-term trading opportunities, rather than a reassessment of the market's fundamental outlook. Alex Altmann, Barclays' Head of Global Equity Tactical Strategy, stated in a report 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 at this point signal any fundamental changes in our judgment on the negative factors discussed in recent months. It is precisely these factors that have kept us cautious since late May."

The main basis for Barclays' bullish signal lies in the significant recent adjustment of investors’ positions, particularly among systematic investment strategies that trade based on technical indicators rather than fundamentals.

According to the bank’s data, equity risk exposure among Commodity Trading Advisor (CTA) funds has fallen to the 8th percentile, while another popular investment strategy—volatility control funds—have their equity risk exposure at the 1st percentile.

Volatility control funds typically reduce stock holdings when market volatility rises, in order to maintain predetermined risk levels. Last week, the CBOE Volatility Index (VIX), known as Wall Street’s “fear gauge”, briefly surged to 28, prompting these funds to further reduce equity holdings.

As these systematic investment strategies have reduced their equity positions to extremely low levels, any retreat in market volatility could trigger renewed buying, potentially fueling a rebound in US stocks.

Seasonal factors may also offer extra support for a short-term uptick in US stocks. Barclays notes that November has historically been one of the strongest months for US equity performance. Over the past ten years, the average gain for the S&P 500 in November has reached 4%.

However, the bank also warns that after a challenging investment period and with year-end approaching, some fund managers may be reluctant to take on significantly more risk. Data shows that aggregate long equity exposure among hedge funds has dropped to the 7th percentile over the past year, reflecting that institutional investors’ equity positions are at relatively low levels.

Other market indicators also show that the previously excessive bullish sentiment among investors has been partially digested during the recent sell-off. Although retail investors have continued buying stocks, Barclays’ indicators measuring market exuberance remain at subdued levels.

It is noteworthy that Barclays does not intend to maintain this tactical bullish stance for the long term. The bank said it would consider exiting related bullish positions if the market achieves roughly two-thirds of the expected short-term gains—in other words, if the S&P 500 rises 5% to 6% in November.

Altmann pointed out that the traditional year-end “Santa Claus rally” has in recent years increasingly tended to start earlier, in November. This means that even if US stocks experience a rebound this month, downward pressure could return in December. At that time, declining year-end market liquidity and uncertainties around Fed monetary policy could again weigh on the equity market.