Exposure to the S&P 500 reached levels that were previously followed by a 10% dropaccording to Citigroup Inc strategists in a recent report. Long positions in futures linked to the benchmark index are at the level highest since mid-2023 and they seem “especially widespread,” the team led by Chris Montagu wrote in a note.
“We are not suggesting that investors should start reducing their exposure, but “Positioning risks increase when markets extend in this way.”they pointed out.
The S&P 500 fell 10% between August and October of last year over fears that the Federal Reserve would keep interest rates high for longer to combat high inflation. Big tech companies bore the brunt of the losses, exacerbating the broader market declines.
This time, Investors are more optimistic about the macroeconomic outlook, given that the Federal Reserve has already begun to cut rates at a time when economic growth continues to resist. For its part, the S&P 500 is once again approaching all-time highs.
Citi’s Montagu also said profitable positions are less pressured compared to 2023, “suggesting “Less capital at risk and therefore less motivation to hedge if markets decline.”
Goldman Sachs sees end to decade of big S&P 500 gains
Goldman Sachs also agrees with Citi, noting that US stocks are unlikely to maintain their above-average performance as investors turn to other assets in search of better returns.
It is expected that the S&P 500 Index will post an annualized nominal total return of just 3% over the next 10 years, according to an analysis carried out by strategists including David Kostin. That contrasts with 13% over the past decade and a long-term average of 11%.
They also predict an approximate 72% probability that benchmark to lag Treasury bonds and 33% to lag inflation through 2034.
“Investors should be prepared for equity returns over the next decade that are at the lower end of their typical return distribution,” the team wrote in a note dated Oct. 18.
U.S. equities rallied after the global financial crisis, first driven by near-zero interest rates and then by bets on resilient economic growth. The S&P 500 is on track to outperform the rest of the world in eight of the last 10 yearsaccording to data compiled by Bloomberg.
Source: Ambito
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