Barclays’ team of strategists sees enough room for a broader stocks rally, particularly if the economy manages a soft landing. This is despite the massive gains in the equity market in recent months.
Accordingly, the stock positioning isn't overstretched outside of the US and technology sectors, indicating potential for expansion in other areas.
The strategists suggest that, despite the recent robust performance, stocks might take a short pause, but the "buy the dip" mentality could prevail again. This is especially likely considering that equity allocations from mutual funds and retail investors are not at excessive levels.
Equity positioning has increased across the board in January, with CTAs (Commodity Trading Advisors) being fairly long. Moreover, macro hedge funds and risk control funds have also upped their exposure, which might amplify market downturns if any adverse events occur.
There is still a significant amount of money in money markets, which could potentially flow into riskier assets as economic growth rebounds and interest rate cuts are expected to start more aggressively in the second half of the year.
The re-risking trend observed so far has been concentrated in US and tech stocks, with Japan also seeing substantial interest. However, China and Europe have not been as favored, with long-only funds and systematic strategies still underweight in these regions.
Sector-wise, European cyclicals such as luxury, autos, mining, chemicals, banks, and energy are not overcrowded, presenting potential opportunities for investors looking to diversify their portfolios.