US stocks are vulnerable as big investors lose faith, RBC says

Big investors may be souring on U.S. stocks, and their still-elevated positioning means equities may drop further, according to RBC Capital Markets.

The latest data from CFTC on asset manager positioning in U.S. equities for all contracts combined fell significantly, its second weekly drop, RBC strategists led by Lori Calvasina wrote in a note Wednesday. That follows retail investors’ sentiment taking a “sharp and sudden bearish turn” last week, they said.

“A decline in positioning in S&P 500 contracts contributed to the move, meaning investors pared back on general U.S. equity market exposure not just specific trades within it,” the strategists wrote. What’s more, “even with last week’s dip, institutional investor positioning remains quite elevated relative to history, suggesting the stock market remains vulnerable to bad news on fundamentals.”

 

The S&P 500 fell more than 2% on Tuesday, the most since May, amid concerns about the U.S. debt ceiling swirling along with inflation, supply-chain issues and the pace of economic growth. The trajectory of Covid-19, as well as potential quarter-end dynamics are also weighing on investors’ minds. Still, the Cboe Volatility Index, or VIX, stayed below 25 on Tuesday, suggesting a lack of serious concern -- and S&P 500 futures were up 0.5% as of 7:30 a.m. in London.

“Equity markets are stabilizing but ahead of it are still a series of shocks as economic data and earnings disappoint,” said Sebastien Galy, a strategist at Nordea, in a note Wednesday, joining Calvasina in cautioning that there could be more pain to come. “The period of gyration of a multiplicity of shocks could last still for a week or two.”