Investors have cut their equity exposure to levels not seen in years, as fears over economic growth mix with cautious optimism for policy support. According to Deutsche Bank, overall positioning in stocks has fallen well below normal, with both computer-driven funds and traditional investors scaling back amid persistent uncertainty.

Key Points on Investor Positioning

Systematic Strategies Pull Back:

Automated, rules-based funds—commonly known as systematic or volatility control funds—have slashed their stock holdings to near the lowest levels recorded since the COVID-19 shock in March 2020.

These funds may resume buying if small market dips (less than 3%) occur and volatility continues to ease.

Traditional Investors Remain Cautious:

Discretionary fund managers have also maintained low but steady exposure, waiting for clearer signs from economic data.

Their restrained positioning reflects an anticipation of a slowdown in GDP growth and company earnings despite a recent slight uptick due to a pause in trade tensions.

Mixed Regional Flows:

While U.S. stock funds recorded significant inflows—nearly $31 billion, including into leveraged funds betting on rising markets—European and Japanese funds experienced notable outflows.

China, however, saw strong inflows of $26 billion, the highest in six months, supporting local equity markets.

Overnight Trading Concerns:

Notably, much of the recent decline in the S&P 500 has occurred during overnight trading, marking a shift from the historically stronger performance seen during regular market hours.

Market Flows and Future Outlook

Investor Caution Remains:

Despite recent selloffs, new money continues to flow into equities, indicating that some investors are willing to step in amid the volatility.

Deutsche Bank and other market analysts warn that uncertainty over U.S. macro policy and the possibility of a recession weigh on sentiment, even as some tariff-related risks are easing.

Policy and Earnings in Focus:

With more corporate earnings reports on the horizon, particularly in key sectors like banking and technology, market watchers await further economic signals.

Investors are keeping an eye on potential policy changes that could provide a clearer path for a sustained market recovery.

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