Investors Added More Than $16 Billion in New Risk Flows to S&P 500: Read By Investing.com

Investing.com — Investor sentiment shifted as more than $16 billion poured into , reversing a recent trend of risk aversion. That influx pushed the S&P 500 to higher levels, according to analysts at Citi Research in a note dated Monday. Positive economic data appears to have supported this renewed investor confidence.

Early August saw little equity positioning as investors navigated a cautious, risk-on environment. However, last week’s macroeconomic releases, particularly in the United States, catalyzed a sharp turnaround.

The producer price index (PPI) for July came in flat, a sign of stabilizing inflationary pressures after months of persistence. This was followed by the Consumer Price Index (CPI) in line with market expectations, further reassuring investors that the inflationary environment is easing.

These developments have contributed to a more optimistic economic outlook, reducing fears of a prolonged inflationary period and giving the Federal Reserve more flexibility in managing interest rates.

As these positive data emerged, the S&P 500 responded with a rally, reversing losses suffered during the early August selloff. This increase was not only a reflection of improved market sentiment, but also a signal of renewed investor engagement with the equity market, particularly in the S&P 500, which saw most of the new risk flows.

“Net positioning increased across US indices, with the S&P seeing distinctly higher and consistent new risk flows throughout the week. Notional positioning increased by nearly $18 billion, with the vast majority (+$16 billion) coming from new longs,” Citi analysts said.

“Nasdaq and Russell position flows followed a similar upward trend, but the magnitude of the flows was much smaller,” they added.

This influx of capital was accompanied by a significant reduction in short positions as the increase pushed all short positions into losing territory. However, Citi notes that the risks associated with these short positions are mitigated by the relatively smaller size of these positions.

“Nasdaq and Russell position flows followed a similar upward trend, but the magnitude of the flows was much smaller,” the analysts said.

The Nasdaq, in particular, has been under pressure from long losses, but those losses have now eased significantly, easing pressure on investors and improving the overall profit setup for the index.

The resurgence of uptrends was not limited to US markets. European and Asian markets also saw an increase in investor activity. In Europe, indices as well as turned sharply positive as new long positions and reduced short positions.

However, the EuroStoxx remains bearish as degrossing activity continues to dominate investor behavior in this index.

In Asia, it stood out as the index with the strongest upward flows, reaching levels that Citi describes as increasingly extended. It also extended its net long positions, approaching three-year highs.

Meanwhile, it remains the most bearish, with limited positioning risks due to underdeveloped short take levels.