Investors are stepping up bets on a market downturn, an indication of waning sentiment that analysts say could mean a return to the volatile trading from the first half of the year, The Wall Street Journal reported on Sunday.
Net short positions against S&P 500 futures have risen in the past few months, attaining levels not seen in two years, which indicates that traders are increasing their bets that the index will go down, or at least hedging against that risk.
In another sign that a strong summer rally is coming to an end, short interest has picked up in popular technology stocks, according to the Journal.
This had led many traders and portfolio managers to question if the boost in stocks from the year's lows in mid-June marks the beginning of a new bull market or a temporary bear market rally. The S&P 500 has gone up 11% since June 16 but is still down 15% in 2022.
"There's so much skepticism, so we're still in the sell-the-rally mentality," Nationwide chief of investment research Mark Hackett told the Journal. "If everybody feels we're in a bear market rally, it will almost become a self-fulfilling prophecy."
In the coming week, investors will attempt to determine how well the economy is doing by analyzing the latest monthly jobs report, consumer confidence survey and manufacturing index.
Although inflation cooled a bit in July, leading investors to think at first that the Fed could soon slow the pace of its rate increases, Federal Reserve Chair Jerome Powell put a dent in that thinking by saying that those price readings were "welcome" but fell "far short" of what the Fed is seeking.
Overall, investors again pulled money from U.S. stock funds in the latest week, with the funds logging $1.2 billion in net outflows in the period that ended Wednesday, according to Refinitiv Lipper data.
"The mood went from sour, to less sour, to now more sour," said Neuberger Berman Long Short Fund senior portfolio manager Charles Kantor. "That's a very dangerous game in this environment."
Investors are also increasing their bets against some of the large-cap technology stocks that have helped lead the market's summer rebound. It is unclear if they are placing an outright bet that stocks will fall or aiming to protect portfolios against downside risk, the Journal reported.
Greg Boutle, U.S. head of equity and derivative strategy at BNP Paribas, explained that "positioning doesn't necessarily drive the direction of the market. But once the market trades in a certain direction, positioning often impacts how it trades."
Brian Freeman ✉
Brian Freeman, a Newsmax writer based in Israel, has more than three decades writing and editing about culture and politics for newspapers, online and television.
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