Citigroup (NYSE:C) has highlighted a shift toward a more bullish stance in U.S. equity markets, as investor positioning across major indices strengthens. However, the outlook across global markets remains mixed, with sentiment and flows varying by region.
In the U.S., the surge in investor flows has been attributed to a mix of short covering and new risk allocations over the past week. The Russell 2000 led the momentum shift, with positioning having “accelerated higher, doubling over the week,” according to Citi.
While the S&P 500 and Nasdaq also saw increases in bullish positioning, Citi noted that the overall gross exposure, particularly in large caps, is declining — a signal that market confidence may still be on shaky ground.
“For large caps, trading activity was mostly led by short covering and new risk flows, with the former being slightly larger,” said Citi strategists led by Chris Montagu. “Positioning levels on both S&P (+0.8) and Nasdaq (+1.4) are bullish but not extended,” they added.
Despite this rebound, the firm cautioned that investor conviction remains subdued. “Flows are not being backed with sufficient volume,” the strategists warned, signaling a lack of follow-through behind the positioning shift.
The Russell 2000 remains skewed to the long side, but Citi analysts pointed out that with fewer than 30% of positions offside, the potential for forced covering appears limited.
In Europe, optimism stemming from lower inflation and potential European Central Bank rate cuts hasn’t translated into stronger positioning. Instead, both the Euro Stoxx 50 and DAX saw unwinds of long positions. The FTSE 100 in the U.K. posted a modest uptick in bullish flows, with European banks continuing to attract the most interest.
As a result, relative positioning between U.S. and European equities has returned to a neutral stance.
Asian markets displayed greater volatility. The China A50 saw the sharpest positioning drop, reverting to neutral with no specific catalyst. The Hang Seng Index edged closer to neutral territory as well.
On a brighter note, Japan’s Nikkei and South Korea’s KOSPI recorded improved positioning. Still, Citi downplayed the risk of major forced covering, noting “all short positions [are] in loss territory,” but “limited positioning size” reduces the likelihood of rapid liquidation.