Deutsche Bank says global equity positioning registered one of its sharpest weekly declines on record, as forced unwinding hit the technology sector. Yet global equity funds took in $89.2 billion over the same week, and the bank stays bullish on tech.
Deutsche Bank's consolidated measure of equity positioning plunged to the 20th percentile, according to a new research report. Forced unwinding hammered technology stocks and drove one of the sharpest weekly declines on record.
Discretionary investors lead the retreat
Discretionary investors drove the move, with their positioning tumbling to the bottom 3% of its historical band. Systematic strategies, meanwhile, cut their exposure back to neutral.
Large-cap positioning now aligns with expectations of zero corporate earnings growth, according to the report. Deutsche Bank strategists said this contradicts current market fundamentals, because the median S&P 500 company just posted nearly 15% earnings growth in the third quarter.
Tech positioning falls to lows unseen since Liberation Day
Technology was the epicenter of the sell-off. Sector positioning broke below the broader market to hit lows unseen since Liberation Day, and current positioning implies tech earnings growth is turning negative. The sector posted 53% aggregate growth in the third quarter.
Market chatter blamed the tech sell-off on the recent blue sweep in the U.S. mid-terms, which sparked fears over bipartisan opposition to data center expansions. Deutsche Bank, however, attributed the plunge primarily to what it called a "forced positioning unwind".
The bank also reiterated an overweight rating on tech. Its strategists argue the recent collapse has created a favorable risk-reward setup and describe the market as a coiled spring.
Funds keep buying through the unwind
The positioning drop coincided with inflows. Global equity funds absorbed $89.2 billion over the week, a 20-week high.
Emerging markets led with a record $45.1 billion influx. Chinese equities took $34.5 billion of it, followed by Taiwan with $8.6 billion. Technology funds absorbed $14.5 billion.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
