Stock Positioning ‘Not Stretched’, Leaves Room for More Gains: Barclays By Investing.com

Investing.com — Analysts at Barclays suggested in a note on Wednesday that while stocks are at record highs, overall market positioning is “not stretched,” leaving room for further gains as systematic investors could watch for upside if volatility remains low.

The bank pointed out that despite strong retail buying and increased mutual fund flows, exposure to hedge funds, CTAs and other systematic strategies has not fully recovered from the summer sell-off, indicating untapped potential for further equity investment.

“Sep/Oct seasonality, the pause in buybacks ahead of Q3 earnings and US election uncertainty are near-term headwinds,” Barclays acknowledged.

However, they believe a combined Fed/China “put” – the Federal Reserve’s recent interest rate cuts and stimulus measures in China – could spark a fear of missing out (FOMO) among investors and fuel a risky rotation in 2025.

The note also highlighted sectoral and geographic changes. While US stocks continue to lead global equity flows, demand for emerging markets (excluding China) has picked up, driven by a weaker dollar.

On the other hand, Barclays says European stocks remain under-favored due to macro and political challenges. They add that cyclical sectors such as autos, mining and chemicals appear under-held, showing the potential for further upside as recent short-covering has already begun.

The bank sees the current market setup as a “painful trade” for those under-exposed to cyclicals, particularly in sectors exposed to China.

Analysts pointed out that the easing of measures in China could lead to a similar rally to that seen in April, when stocks exposed to China rose amid soft positioning. They also noted that the relatively low volatility of mining stocks compared to the auto sector presents tactical opportunities for exposure to limited risk growth.