Citigroup strategists said that investors showed signs of caution about US stock holdings, making them doubt the strength of the S&P 500 index's rise.
A team led by Chris Montagu wrote in a report that the recent closing of short positions has brought the S&P 500 index close to one-sided net longing, yet investors seem hesitant to further increase their holdings on the basis of existing long positions. The Nasdaq 100 Index, where technology stocks have a large weight, has turned into net shorting, even though the index strengthened last week.
“The flow of capital shows limited enthusiasm in the market. New long positions are trickling in, and the rise in risk appetite is also weak,” Montagu said.
The S&P 500 index fell for three consecutive weeks last month due to concerns that the Fed would cut interest rates later than expected, but has recently resumed gains. After the weak performance of the April employment report, investors once again began to believe that there is a possibility of policy relaxation this year, and now the focus is on next week's inflation report.
“We haven't seen any significant changes in futures positions to suggest a substantial change in confidence. Investors seem to be at most cautiously optimistic,” Montagu said. “The tepness of long positions, combined with the continuous reduction of long and short positions at the same time, seems to further show that investors are moderately optimistic, but at the same time cautious.”