Barclays and Little Moses speak out: US stocks are rising like a rainbow, and “smart money” may become a new engine for the future market

The Zhitong Finance App learned that analysts at companies such as Barclays and J.P. Morgan Chase believe there is room for further growth in the US stock market, partly because they expect institutional investors to abandon their cautious stance and increase their investment in stocks.

Although the US stock market has rebounded strongly from the decline triggered by tariffs in April, the holdings of large fund managers are still clearly low: Deutsche Bank data shows that since 2010, their overall stock positions have been low only 23% of the time.

Large fund managers' holdings are still low

While bullish retail investors are pushing the S&P 500 back to historic highs, US President Donald Trump's changing trade policies have forced these institutional investors to exercise restraint. This position allocation reflects the cautious sentiment of institutional asset managers, but it also provides them with room to increase allocations to keep up with the pace of the market.

Alexander Altmann, head of global equity tactical strategy at Barclays Bank, said his team will maintain a bullish stance on US stocks over the next few weeks, and called positions and sentiment “too low.”

A J.P. Morgan strategist led by Dubravko Lakos-Bujas said last week that as the Trump administration's focus seems to shift from tariffs to tax cuts, “the path of least resistance is to reach new highs.” “Even after a V-shaped rebound in global stock markets, investors' positions were still at a mild to moderate level, and market sentiment was sluggish.”

The S&P 500 has rebounded 20% from its April 8 low and is now approaching its first all-time high since February 19. A team of Deutsche Bank strategists led by Parag Thatte said that it only took less than two months for US stocks to quickly rebound from the sharp decline, which was the shortest “volatile shock” in history.

However, this wave of gains was largely driven by retail investors, as the so-called “smart money” has maintained a wait-and-see attitude and is largely continuing this practice. If the stock market continues to rise, this may force institutional investors to start buying to keep up with the upward trend.

Keith Lerner, co-chief investment officer at Truist Advisory Services, said that compared to retail investors, institutional investors “focus more on risk than just return.” Lerner said that although there is a catalyst for a rebound in the market, they are also wary of policy-related pitfalls.

“If there's a lot of thunder outside and you decide to drive three hours from Orlando to South Florida, you might be able to do it—but would it be wise to do that?”

Binky Chadha, chief US and global equity strategist at Deutsche Bank and his team, said this cautious sentiment was one reason they are bullish on the S&P 500 index. If investors are convinced that the impact of tariffs will be mild and temporary, they may ignore the impact of the economic slowdown and “increase their wealth when they anticipate a rebound.”

Chadha expects the benchmark index to reach a record high and rise to 6550 points by the end of the year, up another 9% from Monday's closing level.

Deutsche Bank's Thatte said that after Trump announced additional tariffs on April 2, institutional investors had “drastically reduced their holdings” and began to increase their holdings when Trump suspended additional tariffs a few days later.

The next major test of investor confidence is the US Consumer Price Index (CPI), which is due to be released on Wednesday, which will provide clues about how tariffs are affecting inflation.

Frank Monkam, head of macro trading at Buffalo Bayou Commodities, said that one of the key factors that investors are cautious about this round of gains is fear that the bond market will fluctuate again.

“CPI will be the key, and fiscal policy developments over the next few weeks and months will also be critical,” he said.