Wall Street Institutions Bullish on US Stocks as Short Positions Near Five-Year Highs

On November 5, following the U.S. midterm elections, Wall Street institutions such as JPMorgan, Nomura, HSBC, and Citadel Securities issued bullish signals for U.S. stocks. They believe that pre-election deleveraging and short positions nearing five-year highs, combined with continued retail buying, corporate buybacks resuming, and compressed valuations in tech stocks, create conditions for a year-end rebound in U.S. stocks. Data from Citadel Securities shows that the net positions of systematic trend-following strategies (CTA) in U.S. stocks are at their lowest levels since 2018. Retail investors have been net buyers of U.S. equities for 22 consecutive trading days since October 5, accumulating nearly $33 billion in purchases. The market capitalization of S&P 500 constituents eligible for stock buybacks is expected to reach 85% before November 9. Valuations in tech stocks have significantly compressed, with the Nasdaq 100 index's price-to-earnings ratio dropping to 19.1, the lowest since October 2022; the price-to-earnings ratio for S&P 500 semiconductor constituents has fallen to 13.8, down 45% from the beginning of the year. JPMorgan maintains a bullish stance, recommending a combination of tech and cyclical stocks for allocation. Scott Rubner from Citadel Securities stated that after the elections, market volatility has decreased, providing ample space for investors to re-establish risk exposure, with the path of least resistance for U.S. stocks before year-end being upward. HSBC believes that the Anthropic IPO could become an important catalyst for the market to regain a bullish outlook on tech stocks. Historical data shows that since 1938, the S&P 500 index has risen in 95% of the years in the 12 months following U.S. midterm elections, with an average increase of about 14%.

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