Skip links

Inside Markets — Crowding


November 21, 2023

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.

Read more