Analysts at banking giant BNP Paribas say the perfect storm could be forming for US equities that’ll send the stock market higher.
An indicator the bank uses for equity positioning of various investor cohorts like commodity-trading advisors, volatility-target funds and hedge funds has risen to just above a “neutral” reading, Bloomberg reports.
[adinserter block="1"]The bank says that the last time institutions were this underweight on stocks during a big market recovery was in 2023, a year that saw substantial rallies in US equity indices.
Analysts at BNP are calling it an “unloved rally.”
Says Greg Boutle, BNP Paribas’ head of US equity and derivative strategy,
“The adding of risk would indeed be a positive driver… Investors being dragged back into an unloved rally, this could cause the market to overshoot on the upside.”
The bank’s strategists are expecting as much as $20 billion in buying power to come from institutions in the next week as they become forced to jump back in the sudden rally that began amid the tariff-induced uncertainty in early April.
Says Boutle,
“Just because you get a very negative headline, that’s not something that can’t be walked back.”
BNP isn’t the only high-profile player bullish on the already-hot stock market.
In a recent Q&A with the Global Money Talk YouTube channel, Fundstrat’s Tom Lee says that at the start of the year, Fundstrat predicted that industrials, financials and tech would outperform the broader US stock market.
Lee notes that industrials and financials have so far outshone other sectors, with tech now also coming to life. According to Lee, Fundstrat sees the three sectors leading the equity market for the rest of the year.
The Fundstrat executive also thinks that one equity group will see more demand next year, a time when he thinks the Federal Reserve will begin to cut rates.
“With the Fed cutting rates next year, I think that’s going to be good for interest-sensitive [stocks]. So that should really support financials and it should support small and mid-caps.”
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