Wall Street is back in triumphant mode, with stocks at records, risk appetites refreshed — and alternative strategies that run on their own engine winning, too.
The S&P 500 and Nasdaq 100 closed the month at all-time highs, propelled by megacap technology earnings and a strong Apple Inc forecast that landed on Friday morning. Risk-taking went beyond equities, with high-yield credit spreads near multi-year tights and retail traders piling into prediction markets and zero-day options. The rally has held through the war in Iran, oil above $100 a barrel and a Federal Reserve that has signaled rates will stay higher for longer, with traders beginning to price the chance of a hike in 2027.
Beneath all the bullishness for traditional assets, a different kind of record was being set in more exotic strategies. Hedge funds pulled in $45bn in the first quarter, capping the best two-quarter inflow since 2007 and lifting industry assets to an all-time high of $5.2tn, according to Hedge Fund Research. Trend-following quant funds entered May up roughly 10% on the year, according to Société Générale, ahead of US stocks.
The combination is atypical. When stock benchmarks are at records, institutions don’t typically also boost hedge fund allocations at a record pace. When tactical strategies outperform, the money usually comes out of passive. This year, pension funds, endowments and sovereign wealth funds have been adding to both.
"It is somewhat unusual that hedges and long risk are both working,” said Jon Adams, chief investment officer of Calamos Wealth Management. "This is due to an increased macro-opportunities set as well as equities climbing a wall of worry against the macro backdrop, while earnings and profit margins continue to power ahead.”
The Iran conflict has driven much of the upside, sending oil sharply higher and giving trend-following and volatility strategies the kind of directional moves they are designed to catch. Funds known as commodity-trading advisers, or CTAs, have made most of their 2026 gains on long positions in energy — gasoline, heating oil and crude.
"Since the start of the year, the performance is lifted mainly by long positions in the energy sector,” said Sandrine Ungari, global head of QIS structuring at Société Générale. "The shift in macroeconomic equilibrium has been favorable to CTAs, which managed to catch various emerging trends in commodities and equity prices.”
Monetary policy may keep things volatile from here. Some Fed officials formally dissented from this week’s policy statement, objecting to language suggesting the central bank is inclined to resume easing. The 8-4 vote marked the first time since 1992 that four policymakers have opposed an FOMC decision. Interest-rate swaps now indicate the Fed is likely to stay on hold through year-end, with some probability of a rate hike in 2027.
The S&P 500 is now up for five straight weeks and on Friday built on the 10% jump it tallied in April. Risk premiums for high-yield corporate bonds have retraced most of their widening from March and are back below their one-year average.
"Markets seem to be treating the oil shock as though it’s a temporary situation, and are instead focusing on the long-term economic outlook,” said Bradley Kane, portfolio manager at Osterweis Strategic Income Fund. "The fixed-income market mostly tracked the equity market, shrugging off the war in Iran and other negative headlines.”
Hedge funds are attracting money thanks in part to how well they did last year. An HFR benchmark showed the broader group returned 12.5% on average in 2025, the most in 16 years. First-quarter inflows skewed heavily toward the top of the industry: of the $45bn that entered, $39bn went to firms managing more than $5bn. Some of that money is rotating out of private credit allocations institutional investors built over the past five years, which are now facing fresh questions over valuations and redemption access.
Tactical trades are paying off across the board thanks to stock market dispersion and concerted gains across assets. So-called return-stacking strategies are performing, with one such ETF soaring 30% so far this year. A long-short Morgan Stanley basket tracking momentum stocks has gained more than 26% this year. Even an index tracking risk-parity strategies, the kind of balanced but steady portfolios that had looked obsolete during the tech boom, are up 13% and beating US stocks.
"Different strategies responding to the same backdrop,” said Stephen Kolano, CIO at Integrated Partners. "Hedge funds are seeing inflows because stock dispersion is high, which creates opportunity for long/short managers, while CTAs are benefiting from volatility and opportunities in commodities tied to the Iran conflict and an uncertain inflation outlook.”