Fast-Money Trades Roar as Wall Street Climbs Wall of Worry

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(Bloomberg) — Wall Street is back in triumphant mode, with stocks at records, risk appetites refreshed — and alternative strategies that run on their own engine winning, too.

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The S&P 500 and Nasdaq 100 closed the month at all-time highs, propelled by megacap technology earnings and a strong Apple Inc. forecast that landed Friday morning. Risk-taking went beyond equities, with high-yield credit spreads near multi-year tights and retail traders piling into prediction markets and zero-day options. The rally has held through the war in Iran, oil above $100 a barrel and a Federal Reserve that has signaled rates will stay higher for longer, with traders beginning to price the chance of a hike in 2027.

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Beneath all the bullishness for traditional assets, a different kind of record was being set in more exotic strategies. Hedge funds pulled in $45 billion in the first quarter, capping the best two-quarter inflow since 2007 and lifting industry assets to an all-time high of $5.2 trillion, according to Hedge Fund Research. Trend-following quant funds entered May up roughly 10% on the year, according to Société Générale, ahead of US stocks.

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The combination is atypical. When stock benchmarks are at records, institutions don’t typically also boost hedge fund allocations at a record pace. When tactical strategies outperform, the money usually comes out of passive. This year, pension funds, endowments and sovereign wealth funds have been adding to both.

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“It is somewhat unusual that hedges and long risk are both working,” said Jon Adams, chief investment officer of Calamos Wealth Management. “This is due to an increased macro-opportunities set as well as equities climbing a wall of worry against the macro backdrop, while earnings and profit margins continue to power ahead.”

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The Iran conflict has driven much of the upside, sending oil sharply higher and giving trend-following and volatility strategies the kind of directional moves they are designed to catch. Funds known as commodity-trading advisers, or CTAs, have made most of their 2026 gains on long positions in energy — gasoline, heating oil and crude.

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“Since the start of the year, the performance is lifted mainly by long positions in the energy sector,” said Sandrine Ungari, global head of QIS structuring at Société Générale. “The shift in macroeconomic equilibrium has been favorable to CTAs, which managed to catch various emerging trends in commodities and equity prices.”

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Monetary policy may keep things volatile from here. Some Fed officials formally dissented from this week’s policy statement, objecting to language suggesting the central bank is inclined to resume easing. The 8-4 vote marked the first time since 1992 that four policymakers have opposed an FOMC decision. Interest-rate swaps now indicate the Fed is likely to stay on hold through year-end, with some probability of a rate hike in 2027.