Investor Positioning Strategy Update and Flows The Boom And The Gloom

Global Asset Allocation Date 24 July 2026 Investor Positioning Strategy Update and Flows

The Boom And The Gloom Parag Thatte Strategist The equity market has once again been in a tight range, in place for 2 months now, Binky Chadha accompanied by notable rotations, echoing the period from November to February Chief Strategist (Rotation Continued Amidst The Chop, Jan 2026). This week it fell to near the bottom of the range as positioning slipped to neutral. While the Q2 earnings reporting season so far confirms the boom that began in Q1 is accelerating, it has Karthik Prabhu Strategist been overshadowed by the gloom around surging Tech capex, escalating geopolitical risks, climbing oil prices and rising rates. We note: Dag Workayehu n Booming Q2 earnings handily beating a very high bar. Two weeks in and Strategist about a third of the way through the season, nearly 90% of the companies have beat, with aggregate earnings coming in 10% above consensus. S&P 500 earnings growth for Q2 is on track to hit 34% yoy, well above the high bar of 26% set by consensus and our expectation of 29% (Looking For Growth In The High 20s, Jun 30 2026). While MCG & Tech growth (53%) is massive, that for the rest (23%) is also very strong. And looking ahead, consensus numbers for Q3 and Q4 as well as 2027 have continued to rise, which contrasts with the typical pattern of forward estimates falling through the season. n Gloom around a host of concerns, however, has seen equity positioning fall to neutral. Discretionary investors (17th percentile) have cut exposure back to early-April lows. Their positioning is well below levels implied by earnings as well as macro growth. Systematic strategy positioning (70th percentile) meanwhile is still relatively elevated and vulnerable if volatility picks up or if equities break out of the range to the downside. n Rotation out of large-cap Tech about three quarters of the way through as positioning slides from elevated levels. As we noted over the last 2 weeks, large-cap Tech positioning had bounced to elevated levels coming into this earnings season. Even with extremely strong Q2 results, positioning has fallen sharply to nearly neutral (56th percentile) on concerns around runaway capex and the sustainability of off-the-charts growth. It is notable that after reporting results, Tech companies have so far sold off on the day (-1.9pp median) while the rest have on average been flat. The rotation out of MCG & Tech which began on cue in early June (Rotation On Cue, Jun 5 2026) has seen them underperform the rest of the S&P 500 by almost 15pp, about three-fourths of the way down from the top of the long-run relative performance channel (14% annualized, 20% top to bottom).

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Investor Positioning and Flows

n Disruption premium in oil has shot up but is still below March extremes. The renewed escalation in the Middle East has seen oil prices rise about 40% so far. Oil prices are now more than 50% above our estimate of medium-term fair value based on global growth and the US dollar, well beyond the typical band of +/- 30% on either side. At the peak in March, they were 75% above. Similarly, the premium in the front month contract relative to that 6 months out has shot up, as has oil price volatility but both are still below March peaks. n Rising rates reflect Fed hiking expectations but breakeven inflation rates have not risen meaningfully on the latest flare up in oil prices. Compared to the start of the Iran war in late February, 10y real rates are now more than 70bps higher, and 2y real rates about 170bps higher, as expectations for Fed rates have moved from cuts to hikes. Rates volatility in turn has also risen, which as we have pointed out in the past, is usually a temporary drag on equities…