Over the past week, investors have significantly scaled back their bullish positions on major U.S. stock indexes, particularly the S&P 500 and Nasdaq 100. This shift in sentiment stems from concerns about persistent inflation and escalating geopolitical tensions.
Bullish positioning on the S&P 500 dropped by $12.3 billion, with overall net positions now remaining only slightly positive on the index. This decline was partly due to a marked increase in new short positions.
The change in sentiment follows two consecutive weeks of steep losses for Wall Street indexes. Fears of prolonged high-interest rates and rising geopolitical tensions in the Middle East have weighed heavily on investor sentiment.
Weakened risk appetite has also led investors to cash in on the strong gains made by Wall Street during the first quarter, particularly in technology stocks. However, this sector has been hit the hardest by profit-taking.
“Positioning for the S&P is now only marginally bullish, while Nasdaq has turned neutral on the back of flows which were predominantly led by new shorts and continued de-risking of longs,” noted analysts at Citi. “Current positioning levels could potentially amplify any further sell-off.”
Since last month, the S&P 500 has shed nearly 4%, while the Nasdaq 100 has fallen over 5%. Although both indexes remain positive for the year-to-date, they have lost a significant portion of their gains.
Chipmakers, such as NVIDIA Corporation (NASDAQ: NVDA), have been particularly hard hit by the recent sell-off, following disappointing earnings and outlook from industry bellwethers ASML Holding NV (AS: ASML) and TSMC (NYSE: TSM).
Despite the recent volatility, Wall Street found some stability on Monday, recovering from sharp losses as weaker valuations in the technology sector attracted bargain buyers.
A number of key earnings reports from the tech sector are expected this week, with four of the “Magnificent seven” companies set to release their first-quarter results in the coming days. Earnings are largely expected to shape the next phase of movement for Wall Street, as investors assess whether large companies can justify the stellar run-up in valuations seen during the first quarter.
