Barclays expects the S&P 500 to experience a cumulative pullback of around 6 to 7%, as leveraged ETF passive rebalancing is triggering a feedback loop of volatility.

June 10. Alex Altmann, Barclays’ Global Equities Tactical Strategy Director, told a podcast he’s shifting to short-term tactical caution on U.S. stocks. Altmann has been a consistent contrarian since last September—staying bullish even amid March’s Iran conflict, and both of those prior calls ultimately held up. His latest pivot stems from a cluster of signals piling up over the past two weeks: a sharp rise in funding costs pushing real yields higher, crimping stock valuation multiples; retail investor exuberance in some areas is now even hotter than levels seen back in 2021 (when real interest rates were deeply negative, compared to today’s positive rate environment); and institutional investors are holding almost no short positions at all. Altmann noted that when exuberance hits this peak, the S&P 500’s expected return curve stops looking attractive. He’s particularly focused on leveraged ETFs right now. These products rebalance positions daily, which can drive outsized stock trading volume through their underlying holdings, creating a self-reinforcing boom-bust spiral already playing out in recent weeks. With momentum trading resurgent, crowded positioning leaves the market vulnerable to sharp pullbacks from tiny trade adjustments or shifts in market narratives. Altmann projects the S&P 500 will see a total pullback of 6% to 7%, and he thinks that downturn is already about halfway done. To flip back to bullish, he’s eyeing three key things: further stock declines to bleed out excess exuberance, successful market digestion of large IPOs, and lower real yields. If the new Fed chair verbally pushes real yields lower and offers market reassurance, that would also act as a tailwind for stocks.