[ad_1]
While Wall Street was focused on reversing the yield curve over the last few weeks, big investors have started their own trend.
Institutional investors – including pension and insurance fund managers – have accumulated long positions in the S & P 500 futures from late June to mid-July, according to data from the Commodity Futures Trading Commission. This took place as equities climbed to record highs in anticipation of the Federal Reserve interest rate cut on July 31.
Bullish investor bets were so strong that they seemed "euphoric" to Lori Calvasina, head of US equity strategy at RBC Capital Markets. It was so remarkable that she said that the chart showing the skyrocketing long-term positions on long-term contracts keeps her team awake at night.
The graph below clearly shows why it is worried: the long net positions on equity futures reached a level corresponding to the peaks reached during the peak reached before the financial crisis and before the massive sales in January and September of the year. Last year.
"Whenever this positioning gauge has reached the levels seen last July, the S & P 500 has been seriously damaged," Calvasina said in a recent note to customers.
She added: "We will not sleep well anytime soon, based on what we have seen, since we are worried about inconveniences beyond 2,725 to possibly totally solve this clutter problem."
Investors have reduced some of their bullish bets over the last two weeks, due to soaring fears of recession and the flight of bonds that reversed the yield curve. A new release that would reduce the S & P 500 to 2.725 would represent a 10% withdrawal from its record level, to begin with.
In addition to dampening investor sentiment, Calvasina has identified earnings growth as a risk to the market.
Last week's announcement that President Donald Trump had postponed the latest tariffs on Chinese imports until December had been welcomed on Wall Street, as it had eased concerns over the results of the third and fourth quarters. But according to Calvasina, the news has hardly improved the outlook for 2020.
Read more: The dreaded reversal of the yield curve has created the perfect opportunity to profit from a group of stocks that the market ignores, according to Goldman Sachs.
The universe of the market that could suffer to a lesser extent is the universe of small cap companies. Indeed, the trade war has led investors to be much less optimistic about the domestically focused cohort, according to Calvasina.
"Despite our concerns about a new short-term weakness in the US market as a whole, we are maintaining a neutral position on small caps versus large caps over a 6 to 12 month outlook," Calvasina said.
She added, "Even though small caps have lagged behind large caps in August, we do not believe that an underweight in small caps makes sense for years to come."
[ad_2]
Source link