Barclays and JP Morgan both voiced: The US stock market is surging, and "smart money" may become the new engine for the market's future

According to Zhitong Finance APP, analysts from companies such as Barclays and JPMorgan Chase believe that there is further room for the U.S. stock market to rise, partly because they expect institutional investors to abandon their cautious stance and increase their investments in stocks.

Although the U.S. stock market has strongly rebounded from the decline triggered by tariffs in April, the holdings of large fund managers remain significantly low: data from Deutsche Bank shows that since 2010, its overall stock position has only been this low 23% of the time.

Large fund managers' holdings remain low

Despite bullish retail investors pushing the S&P 500 index back to historical highs, U.S. President Donald Trump's constantly changing trade policies have forced these institutional investors to remain restrained. This positioning reflects the cautious sentiment of institutional asset managers but also provides them with room to increase allocations to keep pace with the market.

Alexander Altmann, global equity tactical strategy head at Barclays, stated that his team will maintain a bullish stance on U.S. stocks in the coming weeks, noting that both positioning and sentiment are "too low."

JPMorgan Chase strategists led by Dubravko Lakos-Bujas stated last week that as the Trump administration seems to shift its focus from tariffs to tax cuts, "the path of least resistance is to set new highs." "Even after a V-shaped rebound in global stock markets, investor positioning remains at a light to moderate level, and market sentiment is relatively subdued."

The S&P 500 index has rebounded 20% from its low on April 8 and is currently approaching its first historical high since February 19. A team of strategists at Deutsche Bank led by Parag Thatte noted that the U.S. stock market rebounded from a significant decline in less than two months, marking the shortest "volatility shock" in history.

However, this wave of gains has largely been driven by retail investors, as so-called "smart money" has remained on the sidelines and is essentially continuing this approach. If the stock market continues to rise, this may force institutional investors to start buying in order to keep up with the upward trend.

Keith Lerner, co-chief investment officer at Truist Advisory Services, stated that institutional investors "are more focused on risk, not just returns," compared to retail investors. Lerner noted that while there are catalysts for a market rebound, they are also wary of policy-related pitfalls.

"If there is thunder outside and you decide to drive three hours from Orlando to South Florida, you might be able to do it—but is it wise?"

Binky Chadha, Deutsche Bank's chief U.S. and global equity strategist, and his team stated that this cautious sentiment is one of the reasons for their bullish outlook on the S&P 500 index. If investors are confident that the impact of tariffs will be mild and temporary, they may overlook the effects of slowing economic growth and "shift to increasing positions in anticipation of a rebound." Chadha expects the benchmark index to reach a historic high, rising to 6,550 points by the end of the year, a 9% increase from Monday's closing level.

Deutsche Bank's Thatte stated that institutional investors have "significantly reduced their holdings" after Trump announced tariffs on April 2, and began to increase their positions a few days later when Trump suspended the tariffs.

The next major test of investor confidence will be the U.S. Consumer Price Index (CPI) scheduled for release on Wednesday, which will provide clues on how tariffs are affecting inflation.

Frank Monkam, head of macro trading at Buffalo Bayou Commodities, noted that one key factor for investors' cautious stance in this round of gains is concerns about renewed volatility in the bond market.

He stated, "The CPI will be crucial, and developments in fiscal policy over the coming weeks and months will also be vital."