Potential Market Rebound Driven by Short Squeeze and Seasonal Factors

According to PANews, recent data from Goldman Sachs indicates a significant decline in the net leverage ratio of U.S. fundamental hedge funds, reaching a two-year low of 75.8%. However, the total leverage ratio has surged to 289.4%, the highest in five years, primarily due to an increase in short positions. This suggests that while some deleveraging has occurred, there remains room for further reduction before tariffs are implemented, indicating a potential market reversal. The rise in total leverage is attributed to increased short selling, which could be beneficial. Hedge funds are reluctant to reduce long positions and instead rely on leveraged short positions for hedging. In the event of market volatility, lenders may issue margin calls, forcing short sellers to cover positions or sell other assets to meet margin requirements, increasing the likelihood of a short squeeze. If investors opt to sell other assets, it could amplify market volatility. Market sentiment has hit a low, returning to an environment where positive news is perceived positively, suggesting a potential recovery in sentiment. Seasonal negative factors are nearing their end, with historical data since 1928 showing significant market fluctuations in the latter half of March. The S&P 500 index typically rises by an average of 0.92% from March 20 to April 15, and by 1.1% from late March to mid-April, indicating a limited potential for a seasonal rebound in April. If no major unexpected events occur after April 2, the market may stabilize. U.S. pension funds are expected to purchase $29 billion in U.S. stocks by the end of the quarter, ranking in the 89th percentile of absolute value estimates over the past three years and the 91st percentile since January 2000. This move could provide some market support. Despite market fluctuations, retail investor participation remains steady, with net buying accumulating to $1.56 trillion in 2025, with only seven trading days of net selling. Additionally, U.S. money market funds have grown to $8.4 trillion, representing cash reserves for retail and other investors. These funds could quickly convert into stock market buying power if market sentiment improves or investment opportunities arise. Market liquidity remains thin, contributing to significant intraday volatility, highlighting the need for caution.