Investor sentiment towards U.S. stock indexes, particularly the S&P 500 and the Nasdaq 100, underwent a significant shift in the past week, according to insights from Citi analysts. Bullish positions on the S&P 500 experienced a substantial reduction of $12.3 billion, leaving overall net positions only marginally positive on the index. This notable change was partly propelled by a sharp increase in new short positions observed over the same period.
The altered sentiment comes on the heels of two consecutive weeks marked by substantial losses in Wall Street indexes. These losses were fueled by concerns surrounding persistently high inflation rates and escalating geopolitical tensions, particularly evident in the Middle East. Such uncertainties contributed to a weakened risk appetite among investors, prompting them to seize profits amassed during the robust performance witnessed in the first quarter, especially within the technology sector. However, this sector has now been adversely affected by profit-taking activities.
Citi analysts highlighted that the current positioning levels could potentially exacerbate any further market sell-off. Over the past month, the S&P 500 experienced a nearly 4% decline, while the Nasdaq 100 recorded a drop of over 5%. Despite these recent setbacks, both indexes remained positive for the year-to-date, although they had retraced a significant portion of their earlier gains.
Chipmakers, including industry heavyweight NVIDIA Corporation, bore the brunt of the recent market downturn, particularly following disappointing earnings and outlook reports from ASML Holding NV and TSMC, considered bellwethers for the semiconductor industry.
Despite the prevailing market turbulence, Wall Street exhibited signs of stabilization on Monday, rebounding from sharp losses as investors capitalized on comparatively lower valuations within the technology sector, thereby attracting bargain hunters.
Looking ahead, a flurry of earnings reports from the technology sector is anticipated this week, with four of the “Magnificent Seven” companies scheduled to release their first-quarter results. Market observers anticipate that these earnings releases will play a pivotal role in guiding the next phase of market movement, as investors assess whether major corporations can justify their elevated valuations sustained during the first quarter.