US Equity Positioning: Month-End Headwinds
Pension quarter-end rebalance and dealer long gamma to the upside represent a short-term headwind on US equity markets into the end of September. Pensions are estimated to be sellers of $75 bn of global equities, of which $68 bn is supply for the US market to digest. Additionally, September quarterly expiration includes some outsized option positions which will act as a significant source of dealer long gamma, particularly to the upside, acting as a headwind for the market, absent a catalyst to spur meaningful new buying demand.
Hedge funds were net buyers last week, actively re-grossing into semiconductors and AI winners; taking the long/short ratio back to the highest level since December 2025. Semiconductors ended the week as the most bought segment of US equities, closely followed by broad AI winners, with net exposure to AI winners at recent highs. Into Micron Technology's earnings after the market on Wednesday, hedge funds have been long buyers of US memory names, however exposure remains well below the June peaks.
Composite manager positioning remains 0.50std underweight, driven by significant underweight positioning across Value, Large Cap and Broad Mutual Funds. Systematic investors, however, are running long equity risk. Risk control funds have been adding risk on low realized vol, bringing exposure to the 86%tile over the past year; and would sell $120 bn of risk if SPX traded down 2%. CTA exposure is in the 37%tile for the past year and has a clustering of sell triggers within 2% of current spot levels.
While the technical factors of pension selling and dealer long gamma could provide a headwind in the immediate future, moving past month-end these obstacles go away. Should macro risks fade, allowing SPX to break out of its recent range, SPY upside on a 10-handle implied vol appears too low. Look to own 2-3week SPY upside calls for risk defined and low premium upside convexity.