The US and European stock markets are experiencing "two different worlds"! Citigroup: US stock short sellers surrender while European stocks remain bearish
Citigroup strategists pointed out that as the S&P 500 index reached a historic high, short sellers have surrendered, and U.S. stocks performed strongly, rising 27% year-to-date. In contrast, European stock markets remain in a bearish state, with investor interest in stocks in the region waning, especially against the backdrop of sluggish economic growth in France and Germany. Although there are signs of capital inflows into German DAX and FTSE 100 index futures, uncertainty in French politics may continue to dampen investor enthusiasm for the European market
According to Zhitong Finance, Citigroup strategists have stated that as the S&P 500 index continues to set historical highs and is on track for its best performance since 2021, short sellers are capitulating, while European stock market positions remain bearish, further widening the gap between the two markets. Strategists led by Chris Montagu wrote in a report that investor positions in S&P 500 futures are "completely one-sided." They noted that U.S. stocks have "set new highs for the fourth consecutive week, with more and more short sellers beginning to capitulate."
So far this year, investor interest in the U.S. stock market shows no signs of waning. Driven by technology stocks and a general preference for U.S. assets, the S&P 500 index has repeatedly hit new highs, soaring 27%. Following Donald Trump's election as U.S. president, hopes for tax cuts and deregulation fueled the continued rise of the U.S. stock market.
In contrast, the position in European Stoxx 50 index futures remains net short, and the outflow of funds from ETFs is accelerating. With weak economic and earnings growth in France and Germany, along with political instability, investors are avoiding stocks in the region.
Citigroup strategists noted that investors have been net short on the European market for weeks, with 100% of futures long positions in a loss state. However, as the sell-off has been mild so far, the risk of closing positions remains low. There are signs of significant capital inflows into German DAX index and FTSE 100 index futures, which may indicate that investors are selectively "testing the waters" for a return to Europe.
Montagu stated, "But this data does not take into account recent news from the French political scene, which is unlikely to excite those investors who have reduced or shorted European stocks."