Inside Markets — Crowded Positioning

The crowded positioning we see in high beta and momentum factors has largely been driven by retail investor flows. Retail flows to high-beta and momentum factors typically factors typically follow an easing in macro conditions. The current run that took high-beta positioning to the 100th percentile and momentum to the 99th percentile last week followed stronger June payrolls (announced 7/3). Yesterday was the first day since June 10 when high beta and momentum equity baskets both closed lower. We are seeing more of the same today as weak hands let go of short-term trades as we get deeper into earnings season.

As you know, early Q2 results have come in better-than-expected mostly driven by Financials (and airlines). The bar is low for Q2 earnings growth with consensus looking for ~4.5% YoY down from ~11.5% last quarter, but recent equity strength could mean that earnings beats will not be rewarded. Mag 7 earnings growth is expected to deliver +14% YoY in Q2 with the remaining 493 at only +1%. If realized, Q2 SPX earnings growth of ~4.5% would mean earnings growth in Q3 and Q4 would need to average 11% EPS growth to make consensus ’25 estimates a reality. Seasonal weakness in September/October is usually the result of bearish fund flows and downside estimate revisions. Sell-side industry conference season that begins the second week of September is usually the catalyst for downward revisions.