Big investors are afraid of the stock market, and the S&P 500's path to 7,000 just got easier.

By Barbara Kollmeyer

Popular newsletter editor says Wall Street's big money is still scared, and that's a good thing

Wall Street's big investors are fearing this stock market, and that's a good thing, says this trader.

Stocks are in the red as investors enter the last quarter of 2025 with the government shut down, and almost no hope of seeing important jobs data later this week.

Whether or not that derails the stock market remains to be seen, though history says we don't have to worry too much.

Our call of the day from the author and investor behind Lord Fed's Gazette sees an important chunk of investors still too skittish when it comes to buying stocks, which he says will breathe more life into the S&P 500 SPX.

The anonymous author known as Lord Fed, who writes Substack's 13th most popular finance blog, made a prescient call in August, when he predicted that the S&P 500 reaching 6,500 would be a launchpad for more highs.

The index reached that marker by early September, adding 8 record highs for the month and 23 for the quarter that just ended.

In a new post, Lord Fed notes with surprise how Wall Street's supposedly smart money such as hedge funds, recently "blinked" when the S&P 500 neared 6,700. Citing Goldman brokerage data, the trader said funds "are not just trimming around the edges; they're actively reducing exposure as we probe new highs."

For example, after buying U.S. tech stocks in four of the last five weeks, hedge funds sold last week at a pace not seen since early August. "They sat neutral through the entire rally, finally added some exposure, then cut it on the first wobble at fresh highs," said Lord Fed.

Wall Street's big investors have been playing catch up since the April selloff, when retail investors enthusiastically bought the market dip and continued to do that, as they held back like jump ropers trying to enter a swing open.

"This is the opposite of what I expected would mark the top," said the trader. "My concern all year was that discretionary managers - who've underperformed by sitting too light - would eventually get stopped in and capitulate into the rally." In other words, the smart money that hasn't had enough exposure to stocks, would sooner or later have no choice, but to dive, in a big way.

Instead, what has happened is that as the S&P 500 neared 6,700 level - it came within a whisper of that on Sept. 23 - those managers, the "cohort that should be suffering from [fear of missing out] and career risk is treating the slightest chop as distribution rather than consolidation."

The message from this is that those managers are "selling into strength at multiyear highs because they're convinced this is the top." That's other parts of the market, such as momentum-driven commodity trading advisers, are "stuck in the mud," waiting around for the market to see some kind of change in trend before they make a move.

"This is still a market climbing a wall of worry and the wall just got a little taller," said Lord Fed.

"The biggest risk to my 7,000 target was always that we'd get near too fast, that positioning would get stretched, that the skeptics would capitulate. Instead, people keep trying to fade the smallest wobbles at the highs. Dips are now being treated like the start of a correction. And this is just not how tops happen. That's how bull markets extend. The longer discretionary managers stay scared, the longer this has room to run," said the trader.

So recent selling by Wall Street's smart "just added more dry powder for the next leg up."

"The path to 7,000 isn't just alive. It's more likely now than it was two weeks ago," said Lord Fed.

The markets

Stocks DJIA SPX COMP are dropping in the wake of a government shutdown, while Treasury yields BX:TMUBMUSD10Y are lower. The dollar DXY is falling, as the yen (USDJPY) and Swiss franc (CHFUSD) gain, while gold (GC00) is aimed at yet another record high.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6688.46    0.47%   4.25%   13.72%   17.16% 
   Nasdaq Composite                                                     22,660.01  0.38%   6.49%   17.34%   26.52% 
   10-year Treasury                                                     4.152      0.00    -6.90   -42.40   36.40 
   Gold                                                                 3893.4     2.54%   8.17%   47.52%   45.02% 
   Oil                                                                  62.57      -1.70%  -4.65%  -12.94%  -11.55% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Private-sector ADP payrolls dropped 32,000 in September, the third time in four months that businesses cut jobs. The S&P final manufacturing PMI is due at 9:45 a.m. and the Institute for Supply Management at 10 a.m. Auto sales are also ahead.

Lithium Americas stock (LAC) is up 36% after the miner said it reached a deal with joint-venture partner General Motors (GM) and the Department of Energy (DOE) regarding the first draw of a $2.26 billion DOE loan.

U.S. power company AES (AES) is up 15% after BlackRock-owned (BLK) GIP reportedly is launching a roughly $38 billion bid.

Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B) reportedly wants to buy Occidental Petroleum's (OXY) petrochemicals business, in a $10 billion deal.

Nike shares (NKE) are climbing after the sportswear maker delivered an upbeat outlook.

AI data-center stock Fermi raised more money than expected and priced at the higher end of expectations - $21 per share.

A government shutdown took hold at midnight, which will affect other data releases this week and possibly going forward. Here's what it means for you and your money, as well as health insurance costs.

The White House is pulling the nomination of E.J. Antoni to lead the Bureau of Labor Statistics.

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The chart

Vanguard shares this chart showing the mixed reaction markets have had over history to government shutdowns, with the S&P 500 finishing in positive territory more than half the time. In the seven instances where shutdowns have lasted 10 days or more, the S&P 500 four times within the shutdown period and rose three times, with the worst return - a drop of 4.4% - coming during a 1979 shutdown.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   NIO     NIO 
   LAC     Lithium Americas 
   PLTR    Palantir Technologies 
   AAPL    Apple 
   AMZN    Amazon 
   OPEN    Opendoor Technologies 
   TSM     Taiwan Semiconductor Manufacturing 

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-Barbara Kollmeyer

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(END) Dow Jones Newswires

10-01-25 0951ET