As stocks keep rising and turbulence subsides, demand from computer-driven investors who buy and sell stocks on momentum or volatility signals, is also returning. At Deutsche Bank AG, strategists including Binky Chadha aggregated positioning among stock pickers and quant funds, and found their overall exposure has increased to a one-year high.

Fund positioning tends to show an inverse relationship with future market returns, Deutsche Bank study shows. That is, the more bullish fund managers are, the poorer the market performs in coming coming months. While the current reading still signals positive market returns, with gains averaging 1% over the next month, it also points to one third of chances to go negative.

So much faith is put in the Federal Reserve that investors are willing to pay up for earnings that’s estimated to drop 20% this year. At 26 times forecast profits, the S&P 500 was traded at the most expensive level in two decades. To Peter Cecchini, founder of AlphaOmega Advisors LLC, all the index’s gains above 3,000 are unjustified.

“The equity markets are now like an old elevator way over capacity,” said Cecchini. “It’s just a matter of time before the cable snaps and its passengers end up in the basement. That’s where the Fed will be waiting.”

This article was provided by Bloomberg News.

First « 1 2 » Next