Strategists at JPMorgan Chase note that hedge funds have already significantly reduced their equity risk exposure, and some of the capital that previously drove the rally has retreated, meaning the market may no longer be as vulnerable to concentrated selling pressure as it was during the early stages of the decline. After weeks of turbulence, global stock markets may be approaching an important turning point.

JPMorgan strategists believe hedge funds have substantially cut their equity risk exposure, and the recent decline may have released some selling pressure, potentially narrowing the room for further downside. However, this does not mean US stocks have already bottomed, as AI investment returns, financing pressures, and the concentration of technology stock holdings remain potential risks.

JPMorgan Chase global market strategist Nikolaos Panigirtzoglou and his team pointed out that recent position adjustments may be limiting downside risk for the market. Some of the capital that previously fueled the rally has withdrawn, and the market's exposure to concentrated selling shocks may have diminished.

Hedge Funds Cut Positions, Selling Pressure May Gradually Ease

JPMorgan Chase found that semiconductor stock movements are closely correlated with equity hedge fund risk exposure. When chip stocks were rising, related funds increased their risk exposure in tandem; after the market pulled back, strict risk control mechanisms may have forced funds to sell stocks, further amplifying the decline. Meanwhile, trend-following investors and quantitative strategy funds such as commodity trading advisors (CTAs) may also reduce positions as trends reverse. When these funds adjust positions in a concentrated manner, it can easily create a self-reinforcing cycle of falling prices and selling pressure. When a large number of investors have already completed their position reductions, the market may be left with less forced-selling pressure. This is an important basis for JPMorgan's view that downside room for stocks may be narrowing.

However, reduced selling pressure does not equal a market bottom. If corporate earnings expectations deteriorate or new risk events trigger capital outflows, stocks could still continue to fall.

AI Financing Pressure Not Yet Sufficient to Declare the Cycle Over

Recently, operational and financing problems facing "neocloud" companies such as CoreWeave, as well as the poor listing performance of South Korean company Elice, have raised market concerns about returns on AI infrastructure investment. Neocloud companies primarily provide AI computing power services and require substantial capital investment to build data centers, purchase chips, and expand computing capacity. If capital expenditure continues to grow while revenue fails to keep pace, financing pressure could intensify.

But JPMorgan believes that financing strain at individual companies is not sufficient to prove that the entire AI investment cycle is about to end. The report estimates that neocloud companies' capital expenditure needs for 2026 will be approximately $80 billion, which is not large compared to the technology industry's overall related spending of about $1.8 trillion. In addition, the technology industry is expected to have a financing surplus of approximately $400 billion this year, meaning overall cash flow exceeds capital expenditure. This means that even if some companies encounter financing difficulties, larger technology companies with stronger financial resources may still absorb some of the demand.

However, ample funding across the industry as a whole does not mean every company can secure financing smoothly. Debt levels, customer contracts, and cash flow will still affect a company's ability to continue operating.

Semiconductors Become the Bellwether for Market Risk Appetite

JPMorgan also pointed out that the semiconductor sector's impact on global stock markets has exceeded its market capitalization weight in the index. Report data shows that the information technology sector accounts for approximately 28% of the MSCI All Country World Index market capitalization but represents 40% of hedge fund-related risk capital; the semiconductor sector's market capitalization weight is approximately 13%, corresponding to 21% of risk capital. This indicates that semiconductors are not only an important indicator of AI industry prosperity but also an area where large amounts of trading capital are concentrated. When chip stocks decline, position adjustments may spill over to other technology stocks and even affect broader market sentiment. Therefore, investors should not only pay attention to chip companies' revenue, profits, and orders but also watch whether hedge funds continue to reduce positions and whether financing pressure on AI companies spreads across the entire industry.