If you’re wondering whether discretionary cohorts have continued to re-allocate and otherwise take up exposure to equities, the answer is “Yes.”

The positioning story is by now quite familiar. After falling from very elevated levels in and around what I’d describe as “peak ebullience” in November of 2021, discretionary positioning bottomed at the October lows for US equities, then meandered sideways. A bullish inflection in January quickly retraced amid rising Fed terminal rate expectations and then the banking crisis. Systematic positioning, by contrast, trekked steadily higher from the October nadir.

In late May, when Nvidia turbocharged market sentiment, discretionary cohorts were forced in. Vol receded, which helped drive additional re-leveraging from systematics, and with both humans and “robots” on board, various measures of aggregate positioning and sentiment turned bullish. The S&P entered a bull market, and here we sit, just 250 points from record highs.

The figure on the right, below, tells the story. The figure on the left shows that Deutsche Bank’s aggregate equity positioning measure now sits in the top quintile, after rising further over the last several sessions.

The latest increase, which put the aggregate metric in the 82%ile, was “driven again by a sharp uptick for discretionary investors,” the bank’s Parag Thatte wrote.

He went on to provide some useful color. “Futures net long positions are almost back to the top of their historical range, the bull-bear sentiment spread is already at the top, short interest has fallen sharply and net call volumes have surged to 2021 highs, led by small-size trades,” Thatte said, in a strategy update dated July 21.

Similarly, Goldman’s David Kostin flagged “a recent inflection higher in retail investor purchases,” and a 30% surge in a basket of concentrated shorts since late May.

The bank’s own sentiment gauge is very stretched, and has been for weeks.

“The possibility of an overshoot of ‘fair value’ in equity valuations has increased, as positioning data shows a re-risking among investors,” Kostin went on.

For his part, Thatte sees a parallel with 2019, when systematics led the rally, followed by discretionary investors who “then chased and became similarly overweight well before a clear move higher in fundamentals.”

As for whether all of this is overdone, or otherwise star-crossed, Thatte said it depends on how you look at it. “Discretionary positioning is well above levels implied by popular cyclical indicators like the ISM or the LEI which have continued to move lower [but] the rise is well in line with several other indicators which have already turned up,” he said, noting that macro data surprises are “running strong,” while many hard data measures are “very resilient.”

If 2019 is, as Thatte suggested, a plausible analogue, it bodes well. The S&P’s total return that year was nearly 32%.