JPMorgan reveals market sell-off largely caused by hedge funds, not recession fears

The recent stock market sell-off in the United States has been a subject of concern among analysts and investors. A report by JPMorgan, dated March 11, 2025, indicated that this correction was not primarily the result of recession fears, as many had speculated. Instead, JPMorgan analysts, led by Nikolaos Panigritzoglou, pointed out that the uncertainty surrounding President Donald Trump’s tariff plans was a frequent topic in discussions with clients regarding U.S. growth concerns. The analysis highlighted that although there has been an uptick in estimates concerning the probability of a U.S. recession across various asset classes, the fault may lie elsewhere, specifically with algorithmic strategies employed by quantitative hedge funds. Meanwhile, credit markets were signaling less risk of recession compared to equity markets, indicating a potential disconnect between equities and credit signals. This discrepancy fueled further investigation into the nature of the market's correction and the roles played by different investor types. Retail investors were ruled out as significant contributors to the sell-off, as they continued to engage in 'buying the dip' behavior over several weeks leading up to the analysis. JPMorgan identified two main categories of hedge funds responsible for the shifts: Equity Quant hedge funds and Equity TMT Sector hedge funds. The correction appears to be more attributable to these funds adjusting their positions rather than being influenced by broader economic concerns or discretionary hedge fund managers reassessing U.S. recession risks. Despite these developments, the report suggested a glimmer of optimism, indicating that if inflows into U.S. equity ETFs continue as observed, much of the current market correction could already be behind us.