In mid-March, as markets recognized the persistent risk of conflict involving Iran and U.S. equities experienced a significant decline, asset management institutions—a category defined by the CFTC that includes nearly all institutional investors—sold a record $36.2 billion in S&P 500 futures.
Just one month later, the latest Commitments of Traders (COT) report for mid-April reveals that these same asset management institutions bought a record volume of Nasdaq futures. The shift in sentiment over the span of a single month has been stark.
According to analysis by Goldman Sachs, during the week of April 7 to 14, asset managers recorded a net purchase of $9.7 billion, marking the largest weekly nominal amount in at least the past decade. This inflow consisted of new long positions ($5.9 billion) and substantial short covering ($3.8 billion).
These inflows were partially offset by activity in other segments: other categories and non-reportable accounts increased their holdings by $1.8 billion, while hedge funds sold $5.6 billion, primarily through new short positions ($4.0 billion).
Net long positions held by non-dealers have rebounded noticeably from previously compressed lows. Prior to the buying activity observed in early April, the net long position in Nasdaq futures by non-dealers stood at only the 11th percentile over a two-year period, following several consecutive weeks of sustained selling.
Market sentiment has since grown more exuberant. Goldman Sachs noted that demand from leveraged funds may have increased further; between April 14 and 21, the three-month financing rate for the Nasdaq relative to the federal funds rate rose in absolute terms, indicating higher funding costs and reflecting increased demand. At the same time, given the concurrent price strength, it is highly likely that asset management institutions continued to participate in buying. By April 14, the rolling six-month correlation between asset managers' long positions and the Nasdaq price had recovered to 0.4. Over the following five trading sessions, the Nasdaq index rose by 2.5%, and total open interest increased by $4 billion.
Sentiment in the options market also improved in tandem: the three-month normalized 25 Delta put-call skew for the Nasdaq narrowed significantly, suggesting reduced demand for hedging against downside risk.
Financial blog Zerohedge commented that institutions are once again piling into technology stocks, betting on strong earnings from tech giants. However, such aggressive positioning often signals that a potential pullback may not be far away.
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