JPMorgan Strategist Says the Stock Selloff May Be Running Out of Room

Hedge funds have been trimming their equity exposure hard since the market peaked in September. According to a JPMorgan strategist, that retreat is a sign the selling may be running out of road.

The argument is a contrarian one. When leveraged investors have already reduced their positions, there is less stock left for them to dump. Positioning data of this kind is closely watched because crowded trades tend to unwind violently, and once the crowd has cut back, the pool of potential sellers shrinks. JPMorgan's strategists read the lighter positioning as evidence that the downside for stocks is now more limited than it was at the height of the decline.

Positioning gauges like this one are typically built from prime brokerage records and fund exposure estimates, and they are most useful when they reach extremes. A sharp drop in hedge fund net exposure can mark a point where forced or discretionary selling has largely been exhausted. It does not, on its own, tell investors where prices will go next.

That distinction matters. A view that downside is limited is an assessment of remaining risk, not a forecast of a rally. Equities can still weaken if economic data disappoint, corporate earnings guidance turns sour, or policy surprises push large investors back toward the exits. Positioning is one input among many, and strategists who lean on it usually pair it with fundamentals and macro signals before drawing firm conclusions.

For investors, the more practical takeaway concerns risk rather than direction. A market where the most leveraged participants have already de-risked may be less exposed to another wave of liquidation, which could make any further declines less abrupt. Whether that leads to a durable recovery will depend on what the coming rounds of earnings and economic reports reveal.