As shorts surrender and optimism drives U.S. stocks to record highs, the positioning for bullish U.S. stocks has reached an all-time high.
Citigroup strategists said that the positioning in the S&P 500 index is “completely one-sided,” with long positions reaching a new record as shorts abandon their positions. This refers to the proportion of investors who are “bullish” on the S&P 500 index, that is, the ratio of investors betting that the market will continue to rise to those holding the opposite view.
Analysts led by Chris Montagu wrote in a report on Monday: “The positions in the S&P 500 index have reached a new high for the fourth consecutive week, and more and more shorts are surrendering.”
As a result, among the major stock indices covered in the analyst report, the U.S. stock index has seen the largest increase. Analysts stated that this makes it even more difficult for the remaining shorts.
They wrote: “The three major U.S. markets are currently the most bullish and profitable markets in the report for the longest time. As we mentioned last week, the contrarian traders are not being rewarded.”
This analysis was made against the backdrop of a continuous rebound in the U.S. stock market this year, with investor sentiment high; the S&P 500 index has risen 28% so far this year.
Trump won the election, and his proposed corporate tax cuts and deregulation measures are expected to lead to stronger business activity and profit growth.
Analysts said that the preference of investors for U.S. stocks over international stocks has accelerated the rebound in the U.S. stock market and widened the gap in net positions between the U.S. and European markets.
The long positions in the S&P 500 index stand in stark contrast to the European Stoxx index, which has been in a net short position for several weeks, with all long positions in a loss state,” analysts said. They also stated, “The gap in positions between the two regions will only continue to widen.”
In recent weeks, investors have been bearish on European stock markets. Citigroup stated that investor sentiment may remain unchanged due to the potential for further political disturbances in France.
Due to concerns over potential U.S. tariffs, geopolitical risks, and regional economic downturns, European stock markets have lagged since peaking in September. Political turmoil in France has exacerbated these concerns, with a no-confidence vote scheduled for Wednesday.
In dollar terms, the European benchmark Stoxx 600 index has underperformed the S&P 500 index by more than 25 percentage points this year, marking the largest gap of this century.
However, Citigroup strategists indicated that the current loss positions suggest a low risk of forced selling of European stocks. Ulrich Urbahn, head of multi-asset strategy and research at Berenberg, stated that he has recently increased his investments in European stocks as he believes the bear market has been priced in. He said: “Given the pessimistic positioning, rebalancing fund flows, hope for the German elections and Chinese macro data, a weaker euro, and the potential end of the Ukraine conflict, European stocks have a chance before February next year.”
Article reposted from: Jin10 Data