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A BNP Paribas measure of equity positioning among investors including commodity-trading advisors, volatility-target funds and hedge funds has been steadily rising and now sits at just above neutral. That follows a monthslong rally that saw the S&P 500 Index rebound to new highs from the precipice of a bear market. The last time institutions were this light on stocks in the midst of a sharp recovery was in 2023, according to the bank.
The limited exposure suggests there is room for stocks to rise should investors decide to pile in after tariff chaos pushed them to the sidelines earlier this year, the bank's strategists said. They expect CTAs and volatility-linked funds to buy as much as $20 billion in stocks over the next week, offering support to a rally that has already seen the S&P 500 Index rise 25% from its April low.
'The adding of risk would indeed be a positive driver,' said Greg Boutle, BNP Paribas' head of US equity and derivative strategy. 'Investors being dragged back into an unloved rally, this could cause the market to overshoot on the upside.'
Positioning comes into the spotlight as investors brace for a slew of tests that could challenge the recent strength in equities, from fresh developments in President Donald Trump's tariff war to the upcoming earnings season and possible shifts in Federal Reserve policy.
A concentration of bets in Big Tech shares and a dearth of stocks making new highs alongside the S&P 500 show caution persists, despite the recent gains in markets.
Among the wary is Craig Basinger, chief market strategist at Purpose Investments. In a note earlier this week, he warned that 'an economic growth scare' is building and could derail the rally in equities. The markets have been 'overreacting to good news to the upside' and the firm has adopted a more cautious stance as a result, he added.
Cause for Optimism
Yet there's plenty of optimism as well. Coming into this week, the S&P 500's sensitivity to macroeconomic shocks had dropped to the lowest level since March, before Trump unveiled his sweeping so-called reciprocal tariffs, according to 22V Research.
'People just think he won't go through with anything too harmful,' said Dennis Debusschere, 22V's president and chief market strategist.
Goldman Sachs Group Inc. strategists raised their outlook for US stocks for the second time in two months, saying they expect the Federal Reserve to act sooner to cut rates.
Meanwhile, JPMorgan's trading desk remains 'tactically bullish' on US equities and suggested in a Monday note that investors should view 'near-term volatility' from tariff deadlines as a 'buy-the-dip opportunity.'
Indeed, the markets have taken recent tariff news in stride. The S&P 500 remains within 1% of its record high, even after Trump on Tuesday stressed he would not offer additional extensions on country-specific levies set to now hit in early August.
As a result, some investors are looking beyond this week's tariff announcements and trying to position for a move higher. 'Just because you get a very negative headline, that's not something that can't be walked back,' Boutle said.
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