The recent shift in investor behavior is primarily attributed to discretionary investors, whose positioning has fallen to the 74th percentile. Systematic strategies, which often involve algorithm-based trading, have also seen a reduction in exposure, now sitting in the 78th percentile. This change suggests a more cautious approach among both individual and institutional investors.
The report also highlighted that survey measures of sentiment have dropped to near the bottom of their historical ranges. Despite this cautious sentiment, Deutsche Bank strategists remain optimistic about the economic outlook. They expect robust earnings growth in the low double-digits and strong macroeconomic growth to continue providing support to the markets.
However, the strategists also caution that equity positioning may continue to experience volatility in the near term. They cite tariff headlines and fluctuations in interest rates as key factors that could influence investor behavior and market movements.
Furthermore, the analysis points to specific sectors that may face challenges. Megacap growth stocks and tech sector exposure remain high, which could be a vulnerability given that earnings growth in these areas is likely to continue slowing.
