Market Momentum: Shorts Surrender as S&P 500 Soars
The S&P 500 Index continues to defy gravity, setting new records and poised for its best year since 2021, according to Citigroup strategists. This relentless upward trend has forced short-sellers to throw in the towel, surrendering to the market’s unyielding optimism.
One-Sided Market
Investor positioning in S&P 500 futures has become “completely one-sided,” with the majority betting on further gains. This unabashed enthusiasm has led to a fourth consecutive week of record highs, leaving hold-out shorts with little choice but to capitulate. The allure of US equities remains strong, driving the S&P 500 up 27% this year, fueled by technology shares and a broad preference for American assets.
Post-Election Rally
The election of Donald Trump has injected fresh hope into the market, with promises of tax cuts and deregulation sparking a rally that shows no signs of slowing. In contrast, Europe’s equity market tells a different story.
Euro Stoxx 50: A Bearish Outlook
Positioning on Euro Stoxx 50 futures remains decidedly bearish, with ETF outflows accelerating. Investors are shunning European stocks due to sluggish economic and earnings growth, coupled with political instability in France and Germany. The region’s investors have been net short for several weeks, with 100% of futures long positions currently in the red.
A Glimmer of Hope
Despite the prevailing bearish sentiment, there are signs of life in European markets. Long flows into DAX and FTSE 100 futures suggest investors may be tentatively dipping their toes back into the region. However, the recent news flow from French politics is unlikely to instill confidence in European equities among underweight or short investors.
A Tale of Two Markets
As the S&P 500 continues its upward trajectory, the Euro Stoxx 50 remains mired in uncertainty. While the risk of an unwind remains low, the contrast between these two markets highlights the divergent fortunes of US and European equities.
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