Wall Street trading desks are forecasting a potential year-end rally in US equities as hedge funds and systematic investors rebuild exposure following October's sharp deleveraging, with bearish positioning creating scope for further market gains, according to a report by Bloomberg.

Hedge funds reduced equity exposure and increased short positions ahead of the US midterm elections, pushing bearish bets close to a five-year high. Systematic strategies also cut allocations, leaving institutional positioning at subdued levels following a difficult October marked by technology sector losses and heightened market volatility.

US equities rebounded on Wednesday following the Democratic Party's victory in both chambers of Congress, with technology shares leading gains and volatility measures falling sharply. The VIX Index recorded its largest single-day decline since April 2025 as investors unwound protective positions established ahead of the election.

JPMorgan's US Market Intelligence team remains tactically bullish, arguing that the liquidation of AI-related investments and broader hedge fund deleveraging have created opportunities for a near-term recovery. However, the bank expects managers to become more selective, favouring a combination of technology and cyclical equities as confidence returns.

Citadel Securities strategist Scott Rubner also sees scope for further gains, citing resilient corporate earnings, reduced political uncertainty and significant capacity for institutional investors to rebuild risk exposure. Retail investors have already purchased nearly $33bn in US equities over 22 consecutive trading sessions since 5 October, while systematic fund positioning has fallen to its lowest level since March.

Despite the recovery, hedge funds may require several weeks of market stability before substantially increasing technology exposure. Investors are also monitoring the anticipated initial public offering of AI developer Anthropic, which some strategists believe could provide a significant test of institutional appetite for technology investments following October's correction.