What are the reasons for institutions to start building positions, rebound or reversal? (II) And the reason why there was a reversal starting in November, I personally estimate there should be three possibilities: Figure 4: VIX amplitude intensifies in October and November Firstly, in terms of short-term trends. In October and November, there were two consecutive instances where the VIX was about to reach 30, both of which occurred during the US government shutdown. The first was due to trade between China and the US, and the second was more complex but mainly due to the Federal Reserve's decision not to cut interest rates in December, leading to a rapid rise in front-end interest rates and completely suppressing risk appetite. The common feature of these two panics is that they have not evolved into systemic risks, the US Treasury has not spiraled out of control, credit spreads have not significantly widened, employment and consumption have not experienced a gap, and the risk premium has been pushed too high by short-term events. After the panic subsides, the first reaction of professional funds is that risk has been mispriced. Front end interest rates are moving too fast and too aggressively, and the Federal Reserve may not choose to lower inflation at the expense of the economy when faced with the choice between the economy and inflation, as it has done in the past. This judgment has a direct relationship with Powell's repeated interest rate cuts. In addition to inflation, it also depends on the economy and unemployment. Especially when the unemployment rate is expected to rise sharply in November, hedge funds and institutions judge that the Federal Reserve may not allow the economy to collapse, and this is what Trump does not want to see. I have talked about Trump's role here many times, so I will not say more. Therefore, institutions and hedge funds have chosen to start building positions in November during a downturn, but it may not necessarily be a long-term path. After all, the US economy and employment have indeed shown a downward trend. Although there is still some room for economic recession, it does not mean that it will not occur. Therefore, this opening of positions should be exploratory. This can also be seen from the amount of funds. Figure 5: Predicting the end of the Federal Reserve's high interest rate cycle and the recovery of liquidity Secondly, from the perspective of policy cycles. The market began to realize for the first time in November that the end of the high interest rate cycle may have arrived. Previously, everyone was worried about whether the Federal Reserve would "lower it again" and "continue to hold its fire in 2026". However, with financial conditions reaching their tightest point of the year in mid October, long-term interest rates experiencing a temporary disorderly upward trend, and corporate financing costs approaching pressure points, the Federal Reserve's attitude has clearly changed. Not turning doves, but realizing that overly tight policies themselves can bring new systemic (economic) risks. This is very evident in Williams' speech. He is not telling the market to cut interest rates, but explaining to the market that the current financial environment has deviated from the stable range that the Federal Reserve originally hoped to maintain, and unnecessary deleveraging and liquidity pressure need to be avoided through interest rate cuts. What institutions capture from this tone change is not a single sentence, but a directional shift in the entire policy direction. The Federal Reserve has shifted from "continuing to suppress inflation" to "ensuring that financial conditions do not tighten excessively", and this switch usually means that the loose cycle enters the countdown ahead of schedule. Although the first and second statements may seem to be about expectations of interest rate cuts by the Federal Reserve, they are actually two aspects. The first statement is mainly based on trading judgments, where institutions and hedge funds believe that the current market is oversold and can plan for a rebound, but there is still a lot of uncertainty in the long run. The second statement is mainly about institutions and hedge funds believing that monetary policy tightening is coming to an end, so they are beginning to plan for market reversals. Figure 6: The impact of the midterm elections on the risk market, including estimates for 2026 Thirdly, from the perspective of the direction of the midterm elections. The US election cycle itself is an important wind vane of risk assets, and the end of 2025 to the beginning of 2026 will enter a key mid-term election window, which means that Trump's political momentum will switch from "increasing support rate" to "stabilizing growth, employment and capital market". This has been reflected in the attitude of the White House in the past two quarters. In particular, Trump's clear opposition to the economic recession, as well as the continuous emphasis on manufacturing revival, capital market prosperity, and reduction of regulatory burden, all of these actually point to one core. The Republican Party hopes to see the economy remain resilient before the 2026 mid-term elections, rather than let the unemployment rate continue to deteriorate. More importantly, the choice of the chairman of the Federal Reserve will also change in 2026, and Trump has repeatedly hinted that he would like to appoint a candidate who is more sensitive to interest rates and more friendly to economic growth to replace Powell, which means that the future Federal Reserve structure is more likely to favor Trump's policy framework. From the perspective of institutions, this will directly affect the expected distribution of interest rate paths. Considering that the Trump faction of the Federal Reserve has at least three voting committees, after the addition of the new chairman of the Federal Reserve, as long as two more voting committees are drawn, a more aggressive interest rate reduction strategy can be achieved. And Williams' speech this time may have made institutions and hedge funds see the possibility of this direction, so they choose to start laying out from now on, and then continue with the midterm elections until the 2028 election. At least from now on, as long as the US economy does not sink into a recession, the probability of this path is high, and even if the US economy declines, it will only accelerate the speed of the Federal Reserve's interest rate cuts.