Top Investment Strategy Update: Bullish Sentiment on the Rise in Global Markets
Last week saw a shift in positioning in the financial markets, moving towards a more neutral stance after a bearish sentiment that has dominated since June. This change comes after Beijing's announcement of a stimulus package, according to Citigroup strategists.
In addition to this shift, both the S&P and Nasdaq saw a significant increase in positioning from new risk flows, marking a positive trend in the market. Bullish positioning in the S&P remains at its highest levels in the past three years, indicating growing confidence among investors.
In the US, there was a influx of nearly $18 billion in new risk flows into the S&P and about $5 billion into the Nasdaq. The S&P is now approaching one-sided and extended positioning, with long net notional at the 94th percentile. However, average long profits are small, which helps reduce positioning risks.
The Nasdaq has moved from a neutral stance to bullish, while positioning for the broader market index has remained relatively stable. Strategists note that all three US indexes are showing an increasingly bullish skew.
Short positions across the US indices are all at a loss, with the potential for short covering, especially in the Nasdaq. While average losses are modest, the larger than average short notional could be under pressure if momentum continues for the growth/tech heavy index.
In Europe, investors are mostly neutral in the Eurozone despite rising risk flows, reflecting limited optimism for the region. Eurozone PMIs are contracting, and the Ifo Germany business index is declining, signaling a weaker economic outlook compared to other markets. However, positioning in the Eurostoxx has edged higher, possibly indicating increased interest in value opportunities following China's stimulus announcement.
ETF flows show little sign of changing sentiment, with flat flows for the Eurostoxx and negative flows for the DAX, FTSE, and Euro Banks.
In conclusion, the global financial markets are showing signs of a bullish sentiment, with investors gaining confidence after Beijing's stimulus announcement. While there are risks associated with extended positioning, the overall outlook is positive. It is important for investors to stay informed and monitor market trends to make informed decisions about their investments.
