Wall Street isn't super bullish on the U.S. stock market. That may shock you. Instead of arguing with the hard data to support it, think of this as an excellent, non-consensus opportunity to get long stocks (as U.S. growth and inflation accelerates).
The evidence is obvious. To get a read on consensus positioning, we analyze the CFTC's data on institutional investor's net futures and options positioning for a variety of asset classes. We then take those numbers and compare them to the average contract positioning over the last twelve months.
What you get is called a Z-score. This is basically a fancy way of saying investors are either bullish or bearish versus their historical average over the last year. A negative reading means consensus is more bearish than past positioning and, conversely, a positive reading means they are more bullish. Pretty simple.
Wall Street's Top-10 Longs & Shorts
#Oil #Bonds #Yen
As you can see in the Chart of the Day below, Wall Street is very short the Japanese Yen and 10-year Treasury bonds. On the long side, consensus likes wheat and crude oil. Our research suggests that when the Z-Score exceeds 2.0 times it generally signals a move is overdone in either direction (i.e. the trade is getting particularly crowded).
How Do U.S. Equities Stack Up?
$SPY #Stocks
The Z-Score for the S&P 500 is +0.23 times, meaning institutional investor positioning is in-line with the average over the past year. This is small peanuts compared to positions in the Yen, Wheat or Oil.
In other words, Wall Street could get a lot more bullish on U.S. stocks from here, especially since growth and inflation data continue to accelerate heading into the first quarter of 2017 and S&P 500 earnings improve.
Stay long the S&P 500.
