The S&P 500 could be set for another pullback before year-end amid ‘euphoric positioning’ from investors, RBC says

  • The S&P 500 index could be poised for another pullback before the end of year as valuations continue to rise, according to RBC Capital Markets.
  • The firm is also warning of “euphoric positioning” by institutional investors as US equity futures positioning climbs toward peak levels for the year.
  • Stocks have notched several all-time highs in recent weeks amid optimism around a US-China trade deal and better-than-expected corporate earnings.
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The S&P 500 could be set for one more sell-off before the end of the year, according to RBC Capital Markets.

The bank pointed to the current “euphoric positioning” by large institutional investors as one of the most telling signs of an impending pullback.

“US equity futures positioning among asset managers is just barely below its July 2019, September 2018, and January 2018 peaks, which were all in line with pre-Financial Crisis highs and marked significant peaks in the stock market,” RBC analyst Lori Calvasina wrote in a note to clients on Tuesday.

The graph below shows asset managers’ historical positioning in US equity futures going back to 2006.

RBC Capital Markets

RBC Capital Markets

RBC also said peaking valuations in the US equity market should give investors another reason to remain cautious heading into the end of the year.

Stocks have notched several record highs in recent weeks on rising hopes of a trade deal between the US and China and stronger-than-expected corporate earnings.

“Our S&P 500 multi-factor model remains in line with the peaks that have marked the ceiling since late-2017,” RBC wrote.

The firm remains neutral on the S&P 500 with a 2,950 year-end target. That represents about a 4.4% drop from the S&P 500’s closing price on Monday.

The S&P 500 is up about 23% year-to-date as of Monday’s close, but the index has still hit a few bumps in the road this year. Between late July and early August, the S&P 500 fell about 7% as concerns of a prolonged trade war and global slowdown weighed on investors.

S&P 500

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