Inside Markets — Crowding

A recent sell-side report suggests that crowding across hedge funds has reached a record high with the average fund holding 70% of its long portfolio in its top 10 positions. Thin leadership and crowding in the largest stocks by market cap is a defensive dynamic that usually happens late in a cycle. Crowding also makes markets more vulnerable in the event of a bearish repricing with increased volatility likely spilling into other asset classes. In our opinion, market leadership needs to broaden out over the next month or so to avoid a more bearish outcome.

This afternoon’s earnings report from NVDA will have near-term implications for semis, mega-cap Tech and the broader market.  The Nasdaq 100 (NDX) made a fresh 22-month high yesterday with NVDA making an all-time high.  The rally off October lows looks similar to other semi names that lifted on restored AI optimism, incremental clarity on China trade and lower bond yields. Buy-side expectations for NVDA’s report are understandably high, but there’s also no shortage of concerns with a focus on ‘peak earnings,’ visibility into C25, competition from AMD and competition from hyperscaler custom silicon.

CTA buying in the wake of last week’s cooler-than-expected CPI print is now likely exhausted, which will make upside from current levels more challenging. Attendance and volume will be light tomorrow, which has a tendency to produce increased single stock volatility.  Friday’s half-session is usually a non-event, but we see November flash PMIs on that day as a fairly important catalyst ahead of October PCE due on Thursday 11/30. Core PCE is the Fed’s preferred inflation measure with consensus looking for ongoing disinflation to +3.5% YoY from +3.7% in September. The November Jobs Report on December 8 will likely be the most important catalyst into year-end. Softer-than-expected payroll growth has the potential to shift the market narrative in favor of an imminent recession. This would likely mean lower bond yields, curve steepening and lower stock prices.