S&P 500 Short Positions Reach 12-Year High Amid Inflation Concerns

•  trendspotteam

•  Apr 11 2023
 

As per the projections, the consumer price index is anticipated to rise by 0.2% on a monthly basis and 5.2% on an annual basis in March, a decrease from February's figure of 6%. The core index is expected to increase by 0.4% monthly and 5.6% compared to the previous month's 5.5%. With inflation on the rise since early 2022, every inflation data release appears to be increasingly significant, and this time there are valid reasons for it.

Against the backdrop of the release of the consumer price index, the ongoing banking crisis has become a significant factor. The recent failure of SVB highlighted the potential economic impact of the Fed's interest rate hikes, prompting some to call for an immediate halt to the increases, or even a reduction. With tomorrow's inflation data looming, the concern is that rising prices may necessitate further interest rate hikes to counteract inflation - the very objective that prompted the initial rate hikes.

The previous week witnessed the release of the latest unemployment data, which indicated that the unemployment rate remains historically low at 3.5%. Such data can provide some assurance to the Fed about the prospects for further interest rate hikes, although such decisions are not always desirable. However, if inflation fails to decrease at the expected rate, the Fed may be compelled to continue with interest rate increases.

Investors have grasped the challenging predicament faced by the Fed and are anticipating an unfavorable outcome. The Commodity Futures Trading Commission's (CFTC) data reveals that large speculators, particularly hedge funds, hold the highest number of net positions on the S&P 500 index since 2011. The CFTC reports approximately 320,000 short positions, compared to 100-200,000 long positions recorded a year earlier.

In a letter to its investors, JP Morgan noted that the market sentiment remained bearish, with the recession narrative being the dominant theme in the past week. The letter further stated that conservative projections for the S&P 500 index are currently in the range of 3,800 to 4,200 points, implying a potential upside of not more than 2.5% based on the prevailing conditions.

The International Monetary Fund has published a report that includes a prediction of 1.6% growth for the United States in the coming year and 1.1% for the following year, among other forecasts. The IMF noted that the current banking crisis is an additional burden on the global economy. The impact of an interest rate above 4% will take time to materialize, and there are concerns that March was just the start, regardless of whether the interest rate will rise next month or not. These fears are not necessarily reflected in the IMF's forecasts.

Regardless, it appears that an increasing number of investors hold the belief that the current situation is unlikely to improve in the near future, and that the inflation figures could worsen the message conveyed by the Fed.

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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