Any further weakness in the US stock market could be exacerbated as investors sell their large long futures position, according to Citigroup Inc. strategists.
There are $52 billion worth of long positions on the S&P 500, and 88% of them are in loss, a situation strategist Chris Montagu sees as a risk for the market.
“Long unwinds on the S&P have mainly been profit-taking transactions, but the remaining longs now are on average 0.8% in loss,” he wrote in a note. “Should the market turn negative, the move could be faster and larger due to the large, long positions already in the red.”
The US stock benchmark has slumped 2.6% over the past two trading sessions, driven by concerns about tensions in the Middle East and the path of interest rates. Earnings have also been mixed so far.
“Flows indicate that investors have already been de-risking across most markets even ahead of this increase in uncertainty,” Montagu said, referring to geopolitical developments. “Remaining long positions are already marginally in loss and this positioning setup could amplify any negative market reaction.”
Elsewhere, the strategist said remaining longs on Euro Stoxx 50 futures are already marginally in loss, so “positioning is at a pivot point where a further selloff would see losses rise quickly.”
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