(Bloomberg) — Like stuck card players trying to win it all back in one hand, equity bulls are dialing up risk appetites at the tail-end of a brutal year.

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Active stock managers are adding to positions. Option markets show a trend toward hedging, a sign professional traders are dipping back into equities. Beyond institutional circles, demand for meme stocks springs eternal, with chat-room favorites like AMC Entertainment posting big days.

Fueling the momentum, as usual, is speculation about a policy shift at the Federal Reserve — hopes that took lumps Friday when US hiring and wage growth rose past forecasts. While changes in market leadership may portend a sturdier future for a rally that has lifted the S&P 500 14% since October, it remains hard to distinguish the latest bull run from those that fell apart earlier this year.

“You’ve just got a tough market in terms of folks hoping for signs of some reprieve, but realizing that conditions are still relatively tough,” said Lisa Erickson, senior vice president and head of public markets group at US Bank Wealth Management. “We are more skeptical that this rally is durable regardless of which sector or which style like value or growth is leading it.”

The problem for bulls is that the latest revival of risk appetites is a near-perfect rerun of the situation in early August, when active managers and hedge funds dialed up exposure and meme stocks in some cases doubled and tripled. That episode ended in disaster for bulls, with the S&P 500 plummeting more than 15% over eight weeks. Plenty of pundits see the potential for the same fate this time.

In the latest go-round, equity faithful have been quick to latch on to Fed Chair Jerome Powell’s comments on a possible downshift in the pace of tightening at next month’s meeting, driving the S&P 500 to a 3% rally on Wednesday. That session overwhelmed losses in each of the other four days and kept stocks in green for a second straight week.

More than $10 trillion has been added to equity values as stocks bounced from their bear-market lows in October. Along the way, familiar signs surfaced showing money managers who previously cut equity holdings to the bone are warming up to the market.

In a poll by the National Association of Active Investment Managers (NAAIM), equity exposure fell in September to the lowest level since the 2020 pandemic crash. It has since jumped and now hovers near a four-month high.

In options, demand for hedging is back — seen as a bullish signal considering nobody needed protection when they barely owned any stock. After dipping to a nine-year low in November, S&P 500 skew — which gauges demand for insurance by comparing the relative cost of three-month puts versus calls — has climbed in three of the past four weeks, data compiled by Bloomberg show.

“This may reflect increased hedging activity,” Christopher Jacobson, a strategist at Susquehanna Financial Group, wrote in a note this week. “It could be a constructive sign, suggesting that more investors are adding to positions and as a result incrementally ramping up the demand.”

The battered retail crowd appeared to be awakening — again — at least when it comes to meme stocks. AMC Entertainment climbed 9% over the week, while Bed Bath & Beyond Inc. snapped an 11-week streak of losses, jumping more than 10%.

Similar enthusiasm isn’t evident among the pundit class. Citing everything from a looming earnings contraction to persistent Fed tightening, strategist at firms from Morgan Stanley to JPMorgan Chase & Co. warned the S&P 500 is likely to test its 2022 lows next year. In the worst-case scenario, the team at Morgan Stanley sees the index reaching 3,000, or a 26% drop from Friday’s close.

Investors have been replaying the same basic drama all year. A bounce starts either amid oversold conditions or because of Fed hopes, forcing a short squeeze and prompting rules-based momentum traders to buy stocks. That leads to a tempting, technical-driven rally that gets legs but ultimately crashes. In August, it was Chair Powell’s Jackson Hole speech that deflated the euphoria. Two months before that, it was a hot inflation print.

That said, one difference stands out from the summer rally: market leadership. Back then, technology shares led the rebound as investors snapped up beaten-down firms. This time, economically sensitive and cheap-looking stocks such as raw-materials and industrial producers are in favor.

“It’s less of the speculative fringes. Technology is not participating as much,” said Art Hogan, chief market strategist at B. Riley Wealth. “There’s more durability to this rally because it’s broader.”

Amid all the failed market bounces, institutional investors — pensions, mutual funds and hedge funds — have pulled back. Their net equity demand has shrunk by $2.1 trillion this year, according to an estimate from JPMorgan strategists including Nikolaos Panigirtzoglou.

That may lay the groundwork for progress in the future. Should their positioning return to the long-term mean in 2023, the JPMorgan team’s model shows, that would amount to an increase of $3.3 trillion of stock purchases.

The big question is, are these pros willing to ramp up their holdings in the face of a murky outlook?

Bryce Doty, senior vice president at Sit Investment Associates, says his firm is in the buying mode as Powell stopped drawing the parallel to the inflation era of the 1970s and refrained from saying rates needed to go high enough to destroy jobs.

“It’s a major inflection point or change from the myopic, dogmatic, damn-the-torpedoes, full-steam-ahead and demand destruction rhetoric,” Doty said. “I know that the market will seem a little confused from time to time and things might be choppy, but I left the buy-the-dip camp a year ago. I’m back.”

–With assistance from Vildana Hajric.

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