Retail Investors Fuel Stock Market, Hedge Funds Rebuild Tech Positions Amidst Leveraged ETF Volatility

Retail investors continue to support the stock market, injecting $79 billion into equity ETFs in February, slightly below January's $92 billion. This "buy the dip" strategy is particularly evident in the Invesco QQQ Trust (QQQ), suggesting strong interest in tech stocks like Nvidia, Apple, and Microsoft. Hedge funds, after reducing exposure in 2024, are quietly rebuilding positions in the "Magnificent Seven" stocks, indicating renewed confidence in growth stocks. Equity long/short hedge funds have increased their beta exposure since December. However, leveraged equity ETFs have introduced volatility, triggering $19 billion in negative flows over three days during a recent market correction. This highlights the double-edged nature of leverage, where gains and losses are amplified. Investors should expect continued volatility as retail and hedge fund activity interplay with the impact of leveraged ETFs.