But as the pile of cash on the sidelines keeps growing in the face of a resilient S&P 500 Index, which has soared 14% in a month since bottoming on April 8, Wall Street is debating whether, and when, to jump back in.

“This is so exhausting,” said Ken Mahoney CEO of Mahoney Asset Management. “There’s no playbook on how to trade this.”

Mahoney is sitting on roughly 40% cash but has reluctantly started buying cheaper software shares. He’s not alone, increasing numbers of institutional investors who were wary of the market’s head-fakes based on President Donald Trump’s tariff pronouncements and speculation on the Federal Reserve’s interest-rate path are being dragged back in. 

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The reason is cut-to-the-bone positioning has cleared the path for many of them to return as buyers. At this point, there’s little standing in the way of short-term stock market gains as traders have lifted their bearish hedges, systematic funds are beginning to buy and retail investors are chasing everything from Big Tech to industrials.

“This is an unloved rally,” Colton Loder, managing principal of the alternative investment firm Cohalo, said by phone. “But just based on positioning being cut so much alone, this will likely induce buying in the coming weeks no matter what trade or monetary policy news comes.”

Volatility Plunging

In addition, the S&P 500 Index’s one-month realized volatility fell 17 points Thursday due to the index’s historic 9.5% rally on April 9 coming out of the one-month calculation, according to Tier 1 Alpha. A decline in realized volatility will cause a rapid normalization in risk premium models, enabling those investors to increase their exposure.

“This isn’t about taking on more risk,” Mahoney said. “We’re building up cash to use when we’re forced to buy rallies like now. But we’re still cautious.”

The hesitation among fund managers comes as they debate when to reprice the extent to which the Fed may be able to cut rates this year. Wall Street had been expecting the central bank to cut next month, but Fed Chair Jerome Powell and other policymakers insist they’re waiting for more clarity from economic data. 

“Uncertainty is still pervasive in the economy, and business contacts tell my staff and me that they expect uncertainty to persist longer than they had anticipated earlier this year,” Atlanta Fed President Raphael Bostic said in a blog post on Friday. “I don’t think it’s prudent to adjust monetary policy with so little visibility of the path ahead.”

‘I’m Still Buying’

Retail traders are the one group that seems unfazed by the Fed or Trump’s trade policies. When the market sold off sharply in late February, individual investors bought while institutions rotated out of US stocks at a near-record pace. At Bank of America Corp., individual-investor clients bought stocks for 21 straight weeks through May 2, the longest buying streak in the firm’s data history going back to 2008.

Take Jay Rice, a 64-year-old former Wall Street broker who day trades in Cave Creek, Arizona. He’s piling into Nvidia Corp. and Amazon.com Inc., and breaking up his big trades into smaller lots to deal with the underlying volatility.

“When turbulence creeps up like this, it’s a lot harder to put on trades, but I love it,” Rice said by phone. “The constant back-and-forth on Trump’s trade threats can make things so difficult, but I’m still buying.”

Commodity trading advisers, or CTAs, which take their cues from the stock market direction rather than fundamental factors, are starting to inch back to the table, according to Goldman Sachs Group Inc.’s trading desk. A historic bout of tariff-driven volatility caused them to sell for most of this year, but their equity exposure has risen slightly, although it remains low compared to readings over the past five years, according to UBS Group AG.

Other equity strategies, however, remain more neutral.

Waiting For Exhaustion

“You can’t always chase these rallies,” warned Stephanie Lang, chief investment officer at wealth management firm Homrich Berg, who favors defensive companies like health care and utilities on improving profit outlooks.

Now, Wall Street is poring over charts to find how much stocks need to rally before buyers are exhausted. JPMorgan Chase & Co.’s Bram Kaplan says CTAs will turn into short-term buyers when the S&P 500 reaches 5,800, roughly 2.5% above Friday close of 5,660. The index is still 7.9% below its Feb. 19 all-time high.

In March, the S&P 500 broke below its bullish trend line that began when the most recent bull market started in October 2022. To recoup that, the S&P 500 would need to cross back above 6,000, which Cohalo’s Loder sees as a far more difficult hurdle to clear.

And then there are market watchers like Dennis Debusschere, founder of 22V Research, who doesn’t want to chase what he sees as a fading rally. Since tariffs remain a significant issue and stock market internals remain weak, his firm is pushing shorts in the riskiest corners, like small-capitalization companies.

“We’re just trying to get through all of this intact,” Mahoney said. “Anything can turn on a dime with a tweet.”