Hedge funds raise Nasdaq 100 longs as AI rally lifts tech

Hedge funds raised net-long positions in Nasdaq 100 futures to their highest level since December as the Nasdaq 100 closed at a record. The index gained 0.8% on the most recent trading day, recovering from a sell-off earlier this year that had left it more than 10% below its prior peak.

Data from the Commodity Futures Trading Commission show hedge fund net-long exposure in Nasdaq 100 futures at levels not seen since late last year.

Investors committed roughly $22bn to US technology-focused exchange-traded funds in the third quarter, market intelligence figures show, compared with about $4.6bn flowing into ETFs tracking the rest of the US equity market.

Other market indicators point to increased risk appetite. Prime services data at a major investment bank recorded the strongest net buying of US stocks in five weeks, led by software companies. Fund-flow statistics cited by market strategists show US equity funds recorded nearly $64bn in weekly inflows through Sept. 16, while cash funds logged their largest outflow in nine weeks over the same period.

Market breadth weakened in September. Approximately 6% of S&P 500 constituents hit new 52-week lows, a level not seen since last October, which indicates gains have been concentrated in a smaller group of stocks.

Analysts expect information technology companies in the S&P 500 to report about 64% profit growth in the third quarter, versus an estimated 24% increase for the index as a whole. Investors are awaiting quarterly results and forward guidance to determine whether heavy spending on artificial intelligence infrastructure is translating into higher revenues and margins.

Market participants cite persistent inflationary pressure, uncertainty over monetary policy and geopolitical tensions as risk factors. Many investors remain wary after the market impact of aggressive interest-rate increases that began in 2022 and are monitoring central bank signals closely.

Traders and fund managers increased technology allocations ahead of earnings season. Upcoming corporate reports and guidance will be important in assessing whether the recent gains broaden beyond the largest technology companies.