Ahead of the 2024 US election, net positioning in the S&P 500 has taken a notably bullish stance, surpassing the more cautious sentiment seen in past election cycles, according to Citi strategists. This optimistic positioning is a departure from prior years, where investors displayed a more restrained approach before election outcomes.
Citi strategists highlight that this bullish sentiment “has been in place for several months,” showing resilience through October. By contrast, during the 2016 election cycle, investors reduced long positions to neutral levels just a month before the vote. Similarly, in 2012, markets maintained a predominantly neutral outlook throughout the pre-election period.
While this sustained bullish positioning could introduce additional risk, the analysts, led by Chris Montagu, suggest that the election itself may not be the primary factor driving the trend. This detachment from election-specific influences may also reduce the likelihood of a significant shift following the election outcome.
A key element fueling this bullish momentum is the varying risk appetite between US and European equities. Currently, the S&P 500 holds a strong bullish position at +4.0, in stark contrast to the neutral sentiment observed in Eurostoxx. This divergence is also evident in ETF flows, where US equities have attracted robust inflows over recent months, while inflows to European equities have remained stagnant.
Meanwhile, Nasdaq flows mirror the optimism in the S&P 500, with sustained net long positions recorded over the last four weeks. This pattern reflects investor confidence in US equities, further confirmed by strong October ETF flows, according to the strategists.
Importantly, Citi notes that this bullish positioning isn’t aligned with any anticipated election result, particularly a Trump victory. Unlike in 2016, there are no prominent “Trump trades” appearing in the futures market, which would indicate expectations of a significant post-election rally.
Instead, factors like inflation, employment data, and potential interest rate cuts are likely to exert more influence on bullish US positioning, though the election introduces a layer of short-term uncertainty.
In Asia-Pacific markets, there’s minimal evidence of strong positioning shifts connected to the US election. Investors display moderate bullishness in China and Japan, with a slightly bearish outlook in Korea, indicating a regional focus on domestic market conditions over the upcoming US election.
(Sources: investing.com, reuters.com)
