With the announcement of the detail of the China-US trade negotiations this morning, the S&P500 (& other equity futures) have popped higher once again (having already opened higher earlier in Asia on Sunday evening, London time). Since Friday’s close the S&P500 is now +2.8%. Since the intraday lows on 7th April (@ 4,830), the index is 20.6% higher. The NDX100 and other equity indices have been similarly strong.
One market saying is: “Buy the rumour; sell the fact”. That is, markets anticipate and by the time something has been announced it’s already in the price. The question is: Is that the case today? With equity markets having rallied so sharply, is all the good news about tariffs now in the price?
Two charts suggest perhaps not (at least, not for now).
- Speculative positioning in VIX futures has moved rapidly over recent weeks and is now net LONG (FIG 1). Net LONG VIX positioning naturally implies that market participants are well hedged to the downside (albeit other hedging indicators have a different message). Indeed, in the past 10 years, there have only been a few occasions when speculators have reached an overall net LONG set-up. Those included after the August 2024 sharp SELL-off; on multiple occasions in 2018 (including ‘Volmaggedon’ and the end of 2018); as well as the late 2015 – 2016 multi month pullback. Net LONG VIX positioning (perhaps at moderately higher levels than today) has historically been a BUY signal for equities (on a multi week/month basis).
- Retail investors still haven’t rediscovered their bullishness (FIG 2). At least, that is according to the AAII retail sentiment indicator. The ‘bullish’ component of the AAII, on a 5 week smoothed basis, remains at low levels (not much above -2 standard deviations). If that’s reflective of their positioning (not just their sentiment, i.e. how they feel), then there is likely still more upside to this equity market.
No indicator, though, is perfect. Hence why we look at a range of them (from a variety of different categories) when assessing our view on the equity market. We do this in multiple publications including our monthly ‘1 – 4 month’ tactical market timing product. In that we run through our suite of indicators each month (plus latest macro views) to determine how to position portfolios on a 1 - 4 month timeframe, i.e. specifically US equities vs. bonds vs. cash. To discover more click here: https://www.longvieweconomics.com/the-tactical-investor.
Fig 1: VIX net speculative LONG/SHORT positions vs. VIX spot index
Fig 2: AAII retail ‘bullish’ sentiment (1 & 5 wk smoothed) vs. S&P500
