US Stock Market One Sided with Longs Outnumbering Shorts 9 to 1
Investors are unfazed by the long debt ceiling stand-off in Washington or the impact of high-interest rates on the Federal Reserve pushing the benchmark rate above the 5% level. Over the past weeks, investors have added $21 billion worth of new long positions on the S&P 500 futures, affirming how bullish the market remains.
US Stocks, Longs vs Shorts
The weekly flow of net longs affirms the one-sided play, with investors staying clear of short positions despite fundamentals and technicals painting a different picture. Longs already outnumber shorts by more than 9 to 1, according to market strategists from Citi. Moreover, investors short the market are accruing losses at an alarming rate owing to the strong buying pressure.
Retail investors are not the only ones going along the market. According to Goldman Sachs prime brokerage unit, Hedge funds have been making big bullish bets, thus helping steer the market higher. Over the past two weeks, purchases have been the fastest since October of last year.
Market Strategists from JPMorgan and Morgan Stanley have been warning that the market remains overstretched after the recent rally. However, investors have been shunning the calls opting to go long in anticipation of another bull run.
The S&P 500, which was under immense pressure last year, is already up by more than 9% and on the cusp of finding support above the crucial 4,200 level. Given the increasing bullish bets, the likelihood of the index powering above 4,300, as most analysts had projected, is high. Tech-heavy NASDAQ has been one of the best-performing indexes gaining more than 26% year to date.
The impressive run comes at the backdrop of investors going long on most tech plays with exposure to artificial intelligence technology. Additionally, the strong rally has come on investors shifting towards companies with strong earnings potential and away from cyclical. In addition, hedge funds have been adding long positions on US mega-cap tech shares.
Stock Market Catalysts
The impressive run in the US stock market comes at the back of a strong earning season that saw most companies’ top estimates and provide a solid outlook. The earnings reports helped shrug off concerns about the potential impact of the US economy plunging into recession. Bets of a potential rate hike pause by the Federal Reserve have also helped fuel positive sentiments in the market.
Consequently, volatility levels have plunged to the calmest levels in over a year, helping strengthen investors’ sentiments. Low volatility has also helped shrug off the potential risks posed by the ongoing negotiations on the US debt ceiling that looks set to drag to the last minute.
However, warning bells following the recent rallies are becoming increasingly louder. Strategists from UBS Global Wealth Management have warned that the market is only pricing good news and shunning bad news, which is bad. Amid the micro uncertainty, the strategists have warned that the recent rally looks worrying.
The upward momentum has already started showing signs of weakness with technicals such as the relative strength index shouting sell. Demand for risk should increase significantly if the US stock market is to hit new levels from current levels.