According to the analysts at Citigroup Inc., investor sentiment toward equities is getting more bearish as they increase short positions in both US and European equity futures. This trend can be seen in both regions.
According to the group that is chaired by Chris Montagu, this week saw a swing that was “markedly more pessimistic,” and as a result, traders added over $3 billion of fresh shorts to the S&P 500 futures positions while also pulling a net $5.1 billion from exchange-traded funds. They reported that in Europe, bets for a fall in the Euro Stoxx 50 tripled, even though the base was initially quite low.
According to a note dated February 27 that was written by the strategists, the overall stance is still considered to be “moderately” favorable, indicating that there is the potential for the bets on a decline in markets to expand should the momentum in flows gather pace. On the other hand, the picture as it stands right now may also be interpreted as an indication that investors “are not convinced about the recent bearish move,” as the analysts put it.
Following a significant advance at the beginning of 2023, stock prices in both the United States and Europe finished the previous week with their largest drop over the course of five days this year. Concerns that central banks will continue to be unyieldingly hawkish were a primary factor in driving these price movements.
Several market strategists, such as Michael Wilson of Morgan Stanley, have also issued warnings that equity markets are likely to come under pressure in the month of March due to declining earnings and rising valuations.
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Montagu said separately in an emailed response to questions-
“Current net positioning is positive, but this net long position has reduced — this suggests that sentiment and conviction is starting to turn,” “From our model, we can’t tell whether this is the start of new trend or a one-off”
In a report published on Monday, strategists at JPMorgan Chase & Co. stated that the risk-reward for equity investments is still inadequate. On the other side, Max Kettner of HSBC Bank Plc stated that he sees a larger probability of a relief rally in the midst of robust economic growth and as predictions of higher rates are priced in.
Kettner works for HSBC. Despite this, he suggested equity hedges, such as cheaper sectors known as value sectors or industries and sectors that are not rate sensitive and are considered defensive.
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