Investing.com Report

Near-Term Profit-Taking and Post-Election Rally

Near-term profit-taking could limit further upside for the post-election equities rally, according to Citi strategists.

The outcome of last week’s US election led to increased investor optimism, pushing markets to close the week at record highs. With election uncertainty resolved and expectations that a Trump administration might support equity markets, alongside recent Federal Reserve rate cuts, the markets received a substantial boost.

Bullish positioning has grown across US indexes, indicating sustained investor risk appetite after the election and the rate cut. S&P positioning now sits at its highest level in three years, with similarly elevated levels observed in the Nasdaq and Russell 2000. Long positions across all three indexes are above the 98th percentile, showcasing an extremely bullish outlook, according to Citi strategists led by Chris Montagu.

Most bearish or short positions have been reduced, except for those in the Nasdaq, where remaining shorts are currently unprofitable. Losses for average short positions on Nasdaq are around -5.6%, which may lead to more near-term covering, providing potential support for the index at its current levels.

Profit levels on long positions in the S&P and Russell are high, potentially increasing the likelihood of near-term profit-taking, which could act as a headwind for further gains.

European and Asian Market Positions

In Europe, positioning in the Eurostoxx turned bearish last week, with short positions leading trading activity. However, overall positioning trends in Europe appear inconsistent, indicating heightened uncertainty. Despite the rise in bearish positioning, EuroStoxx profit/loss levels are still small, leaving limited positioning risks, according to Citi.

In Asia, the China A50 showed an initially positive investor reaction to recent stimulus announcements, with normalized positioning at +3.1 out of 5. The Hang Seng saw a slower rise in positioning. Across other Asian indexes, activity was relatively subdued; the S&P/ASX 200 and Nikkei exhibited slight bullish sentiment, while bearish positioning increased on the KOSPI.