Will the rebound of US tech stocks come to an end? Just as it approached the previous high of the "DeepSeek Impact," "smart money" began to withdraw in large amounts!

After a recent rebound, hedge funds are shorting U.S. tech stocks at a record level. Nomura warns that U.S. stock valuations have returned to January's highs without new drivers such as Federal Reserve rate cuts, making it difficult for tech stocks to continue rising.

COT data shows that during the strong rebound of the Nasdaq index from May 6 to 13 (+7.1%, outperforming the S&P 500's +5.0% and Russell 2000's +6.0%), hedge funds significantly increased their short positions. Short sales reached $11.1 billion, while long purchases were only $4.2 billion, resulting in a net position decline of $6.9 billion.

Specifically, hedge funds net sold $7.3 billion, including $9.4 billion in new shorts. Other categories of investors, such as asset managers and non-reporting investors, net bought $940 million and $300 million, respectively.

Goldman Sachs trader Robert Quinn emphasized that in the past three COT reports, hedge fund short positions surged by about $25 billion—this is the largest scale in at least the past decade. Another striking figure is that hedge fund shorts have reached 41% of total positions—the highest level since February 2021.

With hedge funds heavily shorting, U.S. tech stocks seem to have peaked in the short term.

Nomura's report on May 19 stated that U.S. tech stocks have returned to levels seen before the impact of AI in China and are beginning to approach the highs set in January.

Analysts emphasize that stock prices in the U.S. and Japan have rebounded and exceeded the average levels during the economic recovery, with P/E ratios of 21.5 times and 14.7 times, respectively. In particular, U.S. tech stocks have returned to levels seen before the tariff conflicts and are starting to approach the highs set before the AI turbulence in January. Without new drivers, such as further acceleration in tech investments or Federal Reserve rate cuts, stock prices are unlikely to continue rising.

Gap in Expectations for Federal Reserve Rate Cuts

It is noteworthy that despite the strong rebound in tech stocks, market expectations for Federal Reserve rate cuts have significantly decreased.

Currently, the market expects a roughly 40% probability of a rate cut in July, with an anticipated total cut of about 60 basis points for the year, which is a significant reduction compared to expectations before the "pause" of Trump's tariffs Nomura believes that after reaching a US-China agreement, market focus may shift to: 1) recovery of corporate activity; 2) interest rate cuts by the Federal Reserve.

According to a report from the Ministry of Commerce, substantial progress has been made in high-level US-China economic and trade talks, significantly reducing bilateral tariff levels. The US has canceled a total of 91% of the additional tariffs, while China has correspondingly canceled 91% of the counter-tariffs; the US has suspended the implementation of a 24% "reciprocal tariff," and China has also suspended the implementation of a 24% counter-tariff.

However, analysts warn that it is still difficult to confirm that corporate activity is recovering. After the US-China agreement, the current tariff rates may remain unchanged, and corporate activity may not recover until the earliest in the fall.

Ironically, while so-called "smart money" is increasing short positions, retail investors are buying every dip at a record pace. Retail investors are becoming the most steadfast bullish force in the market