Analysts at firms including Barclays Plc and JPMorgan Chase & Co. see further upside for US stocks, in part because they expect institutional investors to abandon their cautious stance and ramp up exposure to equities.
While stocks have roared back from their tariff-fueled April slide, big money managers remain remarkably underweight: Their overall equity positioning has been lower only 23% of the time since 2010, according to Deutsche Bank AG.
President Donald Trump’s ever-changing trade policies have led them to show restraint, even as bullish retail investors have helped to push the S&P 500 Index back toward a record high. That positioning reflects tentative sentiment on the part of institutional asset managers, but it gives them room to boost their allocations as they seek to keep up with the market.
At Barclays, global head of equities tactical strategies Alexander Altmann says his team is “staying long and strong US equity risks” over the next few weeks, calling both positioning and sentiment “too low.”
And with the Trump administration’s focus seemingly moving from tariffs to tax cuts, “the path of least resistance is to new highs,” JPMorgan strategists led by Dubravko Lakos-Bujas wrote to clients last week. “Even after a V-shape rebound in global equities, investor positioning remains light-to-moderate and sentiment is lukewarm.”
The S&P 500 is approaching its first record high since Feb. 19 after a 20% rebound from its April 8 trough. That swift recovery from steep losses occurred in less than two months, the shortest “vol shock” on record, according to Deutsche Bank strategists led by Parag Thatte.
However, much of that advance was driven by retail investors as so-called smart money stayed on the sidelines and largely continues to do so. If stocks keep rising, that could force institutional players to start buying in order to keep up with the advance.
Keith Lerner, co-chief investment officer at Truist Advisory Services, said institutional investors, compared with their retail counterparts, have a “much bigger focus on risk, not just the reward.” While there are catalysts for the market to rally, they’re also wary of policy-related pitfalls, he said.
“If it’s thundering outside and you decide to drive three hours to get to South Florida from Orlando, you may make it — but is it prudent to do so?”
At Deutsche Bank, this cautious mood is part of their S&P 500 bull case. If investors become confident that tariff impacts will be modest and temporary, they’ll likely look through any slowing in growth “and turn overweight in anticipation of a rebound,” according to chief US and global equity strategist Binky Chadha and his team.
Chadha and his colleagues expect the benchmark gauge to hit a record high and rise to 6,550 by year-end, another 9% from Monday’s closing level.
Institutional investors had turned “deeply underweight” in the aftermath of Trump’s April 2 tariff announcement, and began raising exposure when he paused them just days later, Deutsche Bank’s Thatte said.
The next major test of investor sentiment is the consumer price index due on Wednesday, which will provide clues on how tariffs have impacted inflation. One of the key reservations in joining the rally, according to Frank Monkam, head of macro trading at Buffalo Bayou Commodities, has been concern over renewed bond-market volatility.
“CPI will be key, as well as developments around fiscal policy in the coming weeks and months,” he said.
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