Investing.com -- Recent moderation in tariff threats, coupled with strong corporate earnings, has driven a rebound in U.S. equity positioning, bringing exposure across major indexes close to neutral, according to Citigroup (NYSE:C) strategists led by Chris Montagu.
While the improved sentiment has supported market flows, uncertainty remains over the ultimate outcome of tariff policy, both in terms of timing and final levels. Strategists said that this uncertainty is likely to become a key focus for investors in the near term.
"Furthermore, as we enter the peak-week in what has been an encouraging U.S. earnings season, the consistent thematic in corporate messaging has been the upheaval caused by U.S. tariff announcements, which could be a damper for future growth and earnings," they wrote.
According to the bank, position flows turned positive across all major U.S. indices last week, led by the Russell 2000 and Nasdaq, both benefiting from a combination of short covering and fresh long exposure. S&P 500 positioning saw less movement and remained broadly stable.
Overall activity was lighter compared to recent weeks, suggesting some investors are opting to wait for greater clarity on trade policy before making further moves.
Strategists pointed out that short losses in the S&P 500 have now exceeded those on the long side, shifting risk dynamics back toward short positions. Short positioning remains elevated, sitting in the 92nd percentile relative to the past three years. This setup, they said, could amplify volatility if markets continue to rally and trigger further short unwinds.
Positioning trends in Europe mirrored the U.S., with bullish sentiment rising across key benchmarks. European banks, in particular, saw positioning exceed pre-tariff levels. However, gross positioning on the DAX and FTSE 100 was more restrained.
In Asia, the Hang Seng and China A50 attracted a strong wave of bullish flows, pushing sentiment in both indices back into optimistic territory.
Most other Asian benchmarks followed a similar pattern, though the Nikkei was an outlier—despite gains in the index, positioning activity was mixed and largely unchanged.