U.S. stocks have surged since April, but market sentiment is not overheated, and overall positions have even remained "bearish."

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Although U.S. stocks have rebounded strongly from the April lows, overall investor sentiment may not have reached the level of frenzy.

According to Trading Desk news, JPMorgan analyst Nikolaos Panigirtzoglou and his team analyzed in their latest research report that during this round of market rally, overall market positioning has remained unexpectedly cautious, even "bearish". This suggests that the rally has been driven more by investors "chasing the market" rather than excessive optimism.

By calculating the market's varying sensitivity to positive and negative economic news, JPMorgan found that since early May, when economic data exceeds expectations, the stock market's gains have outpaced the losses when data falls short, implying that investors had underweight positions and were thus forced to chase the market amid positive news.

It wasn't until late September that the market's reactions to news normalized. However, even then, JPMorgan’s various positioning proxy indicators showed that key participants such as hedge funds, speculative investors, and multi-asset funds still had not reached high levels of equity exposure, with some groups remaining cautious.

Low position levels mean there is still plenty of "ammunition" yet to be deployed in the market. If sentiment improves, these funds could provide further impetus to stock prices. On the other hand, this also reflects investors' lingering hesitation to aggressively chase after gains in the context of an uncertain economic outlook.

Key Indicators Show Overall Positioning Is "Bearish"

JPMorgan’s core argument relies on a unique market sentiment indicator, which measures investor positioning by analyzing global equities’ (represented by MSCI AC World Index) reactions to economic data surprises from the U.S. and Eurozone.

The report points out that from early May this year, this indicator turned negative and reached its lowest point at the end of June.

The report explained this means that as the stock market rebounded sharply from April lows, investors found their positioning to be “more bearish than they would like.” Faced with stronger-than-expected economic resilience, these underweight investors were forced to chase the market, which further fueled stock gains.

It was not until late September that the indicator returned to neutral, showing that market positioning became more balanced with macro fundamentals.

Multiple Indicators Show Cautious Investor Positioning

Looking at the positions of different investor groups, cautious sentiment remains common.

First, macro hedge funds continue to maintain light equity exposure. According to JP Morgan citing Pivotal Path data, as of preliminary data in September, macro hedge funds’ equity beta (a measure of their sensitivity to equities) has rebounded somewhat in recent months but remains in the “mildly negative” area.

Second, speculative investors' positions are not extreme. U.S. CFTC data shows that net long positions in U.S. equity index futures held by speculators (asset managers and leveraged funds) have dropped back to near their long-term median, well below the highs seen in 2024 and Q1 2025.

The report believes this shows that speculators’ equity exposures are not excessively high in principle, and thus there is room for them to increase.

In addition, SPY ETF short positions also reflect the cautious market mindset. Data shows that the proportion of SPY ETF short interest has only partially declined, indicating considerable residual caution in the market.

Balanced Funds and Risk Parity Funds Show Diverging Performance

The behavior of multi-asset investors also reflects complex market sentiment. Analysis of U.S. balanced mutual funds and risk parity funds’ equity beta coefficients shows that the beta of balanced funds has fallen below average in recent weeks.

Risk parity funds have shown more volatility. Their equity beta dropped below average in early April, then climbed above average from early August, but fell back below average again at the end of September. The report suggests that the decline in stock beta in September might be partly related to increased implied volatility, which prompted funds to reduce equity exposure.

By comparison, momentum indicators from trend-following investors like CTA funds show that the Z-scores for the S&P 500 and MSCI Emerging Markets Index are currently around 1.2, and about 0.8 for the Euro Stoxx 50 index—still below the 1.5-2.0 range which is usually seen as the “extreme” positioning level that could trigger mean reversion or profit-taking.

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The above content is from Trading Desk.

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