Investing.com -- Investor exposure to US equities has weakened, with outright bullish bets cut in half and gross positioning declining, according to Citigroup (NYSE:C) strategists.
Despite a strong earnings week, the sentiment did not improve, as both the S&P 500 and Russell 2000 drifted lower. Investor positioning showed a mixed outlook, reflecting uncertainty across markets.
"Net positioning was little changed, as offsetting weekly positioning activity nullified any significant moves on the S&P and Nasdaq, but the trend of weakening is more noticeable in monthly trends," the strategists led by Chris Montagu said in a Monday note.
On a normalized basis, positioning for the S&P and Nasdaq continues to decline, with gross positioning falling across most markets. The trend is more pronounced in the Russell 2000, where positioning suggests a divergence from the broader US equity narrative.
"While three months ago, the trade was US versus Rest of the World (ROW) recent changes in positioning flows shows this trade is fading, if not reversing," strategists said.
Market volatility in recent weeks has driven an increase in positioning loss levels for both the S&P and Nasdaq. Short positions remain significantly offside, while over half of long positions are currently in loss.
Still, Citi notes that the extent of these losses has not been severe, nor has it escalated materially. Weaker positioning levels, coupled with small profit/loss figures, indicate fading positioning risks but also highlight continued investor uncertainty.
In contrast, European markets have seen a more optimistic shift. "This is not to say that investors are getting overly excited about the investment prospects for Europe, but there is a sense that with the right positive catalysts this market could prove to be attractive," strategists said.
The improvement in net positioning for the Euro Stoxx 50 and DAX has been driven by a combination of new long positions and short covering, rather than entirely new risk-taking.
According to Montagu and his team, Europe "appears to have benefited from this change in US exposure with investors increasing their exposure over the past week, with bullish levels on the EuroStoxx50 rising and surpassing that of the S&P."
Meanwhile, FTSE 100 flows remain subdued and continue to lag behind the broader European market.
In Asia, bullish positioning in the China A50 and Hang Seng has held firm, despite the recent US tariff announcements.