Citi sees bullish turn in U.S. stocks, mixed signals across global markets

Published 03/06/2025, 09:28
© Reuters.

Investing.com -- Citigroup (NYSE:C) sees a bullish turn in U.S. equities, led by increased investor positioning in major indexes, while global markets reflect more mixed signals.

Investor flows in the U.S. were driven by a combination of short covering and new risk allocations over the past week.

The S&P 500 and Nasdaq registered moderate increases in bullish positioning, though the standout was the Russell 2000, where positioning surged and “accelerated higher, doubling over the week.”

But while positioning appears bullish, the underlying gross exposure is falling, especially in large caps, indicating that confidence remains fragile.

“For large caps, trading activity was mostly led by short covering and new risk flows, with the former being slightly larger,” Citi strategists, led by Chris Montagu, said in a note.

“Positioning levels on both S&P (+0.8) and Nasdaq (+1.4) are bullish but not extended,” they added.

While bullish trends in U.S. equities have gained some traction, Citi remains cautious. “Flows are not being backed with sufficient volume,” the strategists warned, suggesting continued weakness in investor conviction despite the rebound in positioning metrics.

For the Russell 2000, positioning is tilted toward the long side, but with less than 30% of positions offside, the risk of forced covering appears limited.

In Europe, sentiment was more muted. Although falling inflation data raised hopes for rate cuts by the European Central Bank, positioning momentum weakened.

Euro Stoxx 50 and DAX both saw unwinds of long positions, while the U.K.’s FTSE 100 experienced a small pick-up in bullish flows. European banks remained the most favored sector.

Relative positioning between U.S. and European equities has now returned to neutral.

Meanwhile, Asian equity positioning was marked by increased volatility. The China A50 saw the most notable drop, returning to neutral territory with no clear news driver. Hang Seng positioning edged closer to neutral as well.

On the positive side, both the Nikkei and KOSPI saw positioning improve, with all short positions in loss territory, though Citi suggested that force covering was unlikely due to limited positioning size.

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