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The Drop in U.S. Stocks Could Prompt Traders to Buy the Dip, Citi Strategists Predict

April 3, 2024
minute read

The commencement of the second quarter has been turbulent for U.S. stocks, yet an analytical team at Citigroup perceives indications suggesting that investors are prepared to seize the latest downturn.

According to a report by analyst Chris Montagu and his team, accessed by MarketWatch on Wednesday, there has been an uptick in flows into U.S. equity exchange-traded funds (ETFs) and index futures last week, following a brief hiatus earlier in March.

Traders augmented their long positions on S&P 500 futures by $16 billion. Notably, the team remarks that market positioning hasn't reached excessively stretched levels, implying that there remains room for investors to augment their exposure to U.S. stocks, potentially catalyzing a swift rebound from the recent market setbacks.

However, there is a crucial caveat to this optimism: the bullish flows were primarily concentrated in the S&P 500 index, while the Nasdaq-100 largely missed out on the positive sentiment.

The team's assessment of the global stock outlook is similarly upbeat, though positioning in European stocks exhibits a slightly more bullish sentiment compared to the U.S. In contrast, flows into Chinese stocks have displayed divergence, with bearish positioning observed in the Hang Seng index, while investors remain bullish on the FTSE China A50.

Nonetheless, the team warns that disappointing U.S. March jobs data released on Friday could dampen some of this demand, particularly if the unemployment rate rises. Economists surveyed by The Wall Street Journal anticipate the creation of 200,000 jobs last month, alongside a dip in the unemployment rate to 3.8% from 3.9%.

Despite the positive sentiments, U.S. stocks appeared poised to open lower for the third consecutive day on Wednesday, albeit index futures have managed to pare some of the earlier losses in recent trading sessions. The S&P 500 was anticipated to open marginally lower, while the Dow Jones Industrial Average was expected to open relatively unchanged. Nasdaq-100 futures indicated a lower open for the tech-heavy index.

Valentyna Semerenko
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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