S&P 500 positioning stabilized last week as investors digest data from the ongoing earnings season and brace for potential market volatility around the upcoming US election, according to Citi strategists.
“Putting it all together, risk flows over the last week, while positive, were rather subdued but kept net positioning for the S&P 500 net long and extended,” strategists led by Chris Montagu said in a note.
Meanwhile, the market appears to be “increasingly constructive” on the Nasdaq, strategists said, noting that positioning in the index is “bouncing off a neutral level.”
In Europe, positioning in the Euro Stoxx 50 index has been “fickle,” Citi points out.
Last week, there was a shift from net short to net long, suggesting positive momentum, yet this trend lost steam as the week progressed. Activity indicates that investors took profits or trimmed exposure, given the modest profit and loss figures, without initiating new long positions.
European bank positioning remains stable and net long but not overextended, aligning with the underlying fundamentals in the sector.
As for the China trade, whether directly or through the Hang Seng, two main trends emerged from recent trading, according to Citi.
First, positioning for both markets has stabilized, trending slightly more net long. Second, there is noticeably stronger constructive sentiment toward the Hang Seng compared to the China A50, with a twofold preference for the former.
“Overall, this suggests that there is latent interest in China and that investors have perhaps reduced overweights/shorts on the back of the stimulus announcement but are unwilling to put significant risk on directly to this market until more specific information on fiscal policy has been announced,” Montagu and his team explained.
Elsewhere in Asia, the S&P/ASX 200 continues to attract interest, while positioning in the Nikkei and KOSPI 50 remains largely neutral.
