JPMorgan: Deleveraging Only Partially Complete, US Stocks May Still Need to Fluctuate for Three Months in Short Term

According to TechFlow Research, JPMorgan's July 15 capital flow report noted that the deleveraging process initiated in June is still ongoing; leveraged ETFs, options, and margin accounts still have room for compression, and US stocks still face short-term pressure. Since the June peak, leveraged ETF assets have contracted by 34%, and market-wide leveraged ETFs have contracted by 13%. There is "convexity decay" in the leveraged product structure: continuously consuming their own scale during range-bound oscillations, requiring about three more months of oscillation to return to pre-April levels. Retail call option buying volume has retreated from the June 5 peak, but remains distant from historical bottoms; margin account leverage remains at levels comparable to peaks at the end of 2021 and mid-2018. Hedge fund leverage ratios have retreated from June historical highs, and semiconductor positions are beginning to be reduced. Risk parity fund leverage has returned to normal. In the medium to long term, long-term funds such as retail, CTAs, and sovereign wealth funds still provide net demand support, with annual net equity demand approximately $275 billion. JPMorgan believes short-term volatility may be the end stage of deleveraging, rather than a signal of deteriorating fundamentals.