The Economic Times·2025-10-22 00:23Market Overview - The S&P 500 has experienced one of its best stretches since the 1950s, despite warnings, and is currently less than 0.3% from a record high [1][14] - October, historically known for volatility, has seen traders paying more for protection against a market surge than a downturn, although this trend is beginning to shift [3][4] Investor Sentiment - Risk aversion has increased as traders sell upside calls to fund downside protection, indicating a cautious approach despite a 1.7% rally in the S&P 500 last week [6][14] - Discretionary investors are now underweight in equities, having shifted from a moderately overweight position, which may allow them to return as buyers if corporate profits remain strong [8][10] Trading Strategies - Computer-guided traders have reduced their exposure to US equities, moving from elevated levels to moderately overweight, while trend-following funds have seen their positioning decline to the lowest in over three months [10][11] - The most speculative sectors, particularly unprofitable tech companies, have surged, with Goldman Sachs' basket of such stocks rallying 16% in October, indicating a potential disconnect from fundamentals [12][14] Economic Outlook - There is a prevailing belief that the Federal Reserve will lower rates soon, but many investors may be overestimating the impact of such reductions on the economy [6][14] - The uncertainty surrounding trade talks and Fed policy continues to create a challenging environment for investors, with potential risks for a selloff looming [14]