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S&P 500, Nasdaq and Russell 2000 all 'exhibit an increasingly bullish skew': Citi

Published 01/10/2024, 12:04
© Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect
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Investing.com -- Positioning in the FTSE China A50 shifted to neutral last week after predominantly bearish sentiment since June, following Beijing’s announcement of a stimulus package, according to Citigroup strategists.

Alongside the Hang Seng Index, both "saw the largest weekly step up in positioning from new risk flows," the strategists said in a Monday note.

Most regional indexes followed a similar path, but the increase in notional levels has been moderate. Bullish positioning in MSCI Emerging Markets remains the largest among the indexes tracked, reaching its highest levels in the past three years, Citi notes.

In the US, investors directed nearly $18 billion in new risk flows into the S&P 500 last week and about $5 billion into the Nasdaq. According to Citi, the S&P is now nearing one-sided and extended positioning, with long net notional at the 94th percentile, though average long profits remain small, reducing positioning risks.

The Nasdaq moved from neutral to bullish, while there was little change in positioning for the broader Russell 2000 index.

Strategists said that now “all 3 US indexes exhibit an increasingly bullish skew.”

Short positions across the US indices tracked are all at a loss, with increasing potential for short covering, especially in the Nasdaq.

“Although average loss levels here are modest (-2.5%), the larger than average (68th percentile) short notional could be under pressure if momentum continues for the growth/tech heavy index,” strategists said.

In Europe, investors remain mostly neutral in the Euro Stoxx 50 despite rising risk flows, reflecting limited optimism for the Eurozone.

This comes as Eurozone PMIs continue to contract and the Ifo Germany business index declines, signaling a weaker economic outlook compared to other markets. However, positioning in the Eurostoxx edged higher, possibly indicating increased interest in value opportunities following China’s stimulus announcement, while positioning in the DAX, FTSE, and Euro Banks remained mostly unchanged.

ETF flows showed little sign of changing sentiment, with flat flows for the Eurostoxx and negative flows across the DAX, FTSE, and Euro Banks.

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