Investors are still bullish on US equities, though recent momentum in the S&P 500 and Nasdaq 100 flows has weakened as markets hover near their peaks, Citi strategists said in a Monday note.
This, strategists note, indicates that despite the expected U.S. policy easing in the coming months, investors’ enthusiasm remains tempered.
Recent weekly data shows new risk flows into both indexes, but positioning activity has been mixed, leading to only a modest increase in bullish stances. The risks are more evident in the Nasdaq, where 79% of long positions are currently in loss.
While average losses are minimal, “a further decline below 19,000 could lead to a considerable build-up of losses and amplify downside pressure,” Citi cautions.
US stocks climbed on Friday, with the Dow Jones Industrial Average setting a new record as investors wrapped up a turbulent month on a positive note. The 30-stock Dow rose by 228.03 points, or 0.55%, finishing at 41,563.08.
Meanwhile, the S&P 500 increased by 1.01% to close at 5,648.40, and the Nasdaq Composite, which is heavily weighted towards technology, added 1.13% to end the day at 17,713.62.
Elsewhere, European equity indices rose over the week, supported by an improving inflation outlook as indicated by Eurozone inflation data.
Positioning in Europe also showed a constructive sentiment, with new risk flows emerging across the indexes. However, the overall gross positioning in most regional indexes started from a low base, meaning these “larger” weekly changes need to be viewed in the context of generally lighter positioning, which suggests "a positive but limited risk appetite for most European indexes,” Citi’s note says.
In Asia, investors remain long and optimistic about KOSPI and Nikkei. However, persistent macroeconomic challenges are weighing on investor optimism. According to Citi, bearish positioning grew over the week and China A50 positioning “remains the most bearish amongst the indexes we track.”