Volatility-linked funds estimated to be buying as much as $2 billion in U.S. equities daily are helping drive this year's rebound in stocks and may ramp up purchases in coming weeks, though a hawkish Federal Reserve could spoil the party.
"As we think that technical factors may have played a large role in the market performance so far this year, we expect this to eventually wane as fundamental factors resume the dominant position as market drivers," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note on Tuesday.Investors said conditions were supportive of a rally at the beginning of the year. The S&P 500's 19.
Volatility control funds have raised their equity allocation to a nine-month high of 57.7%, strategists at Deutsche Bank wrote on Friday. While that is modest relative to the roughly $34 trillion value of the S&P 500 alone, such funds bear watching since they buy in rising markets and sell when stocks tumble, and can potentially exacerbate downside moves as well as rallies.
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