S&P 500 Rally’s Next Leg Seen Fueled by Big Buyers on Sidelines

Appetite for equities is subsiding among the big-money crowd amid anxiety that a record-smashing rally is becoming too hot. That may be just what this bull market needed.

Models of investor positioning show computer-based and discretionary funds recently cut their stock exposure by the most since early April, when President Donald Trump’s tariff threats sent the S&P 500 Index teetering near a bear market. And hedge funds have pushed a measure of their risk appetite known as net leverage toward the lowest quarter of readings going back three years ago.

With euphoria running rampant among the retail crowd as ...