The August vintage of BofA’s closely-watched Global Fund Manager Survey suggested stewards of capital were the least bearish early this month since the onset of Fed hikes.

To the extent fund managers came into August bullish, their enthusiasm was relative and begrudging. Cash allocations, although well below the highs, by no means suggest investors are all-in on the stock rally, and although the share of professional investors expecting a recession over the next 18 months may be dwindling, recent soft landing converts are more bemused than impassioned.

Suffice to say the increase in discretionary investor positioning over the summer belied an underlying skepticism. To some, that suggests exposure will be trimmed at the first excuse or that discretionary cohorts are anyway unlikely to dial up their exposure further absent definitive evidence that we have, in fact, entered a new secular bull market. And so on. You know the story.

In recent weeks, discretionary investors have indeed de-risked. According to Deutsche Bank, their positioning in equities is now back to neutral. But if you ask Goldman’s David Kostin, the recent decrease in equity length “will be short-lived.”

After averaging 1.5 (a level only observed 6% of the time over the past 14 years) from mid-June through late-July, Goldman’s US Equity Sentiment Indicator has receded to 0.8 in recent weeks.

The more modest readings (shown on the left, above) are consistent with the turn in sentiment discussed here on Friday+, and also with the four-week drop on Deutsche Bank’s aggregate measure of equity positioning.

Notwithstanding this month’s swoon, “the primary positioning story this year has been investors’ sharp increase in equity exposure,” Kostin wrote, citing all the usual reasons: The US economy outperformed, the A.I. narrative conjured dreams of a productivity boom and the disinflation process is proceeding.

To make the point, Kostin documented a big drop in equity mutual funds’ cash position this year and an 11pp jump in hedge fund net leverage from June through late-July.

Note from the figure above that hedge fund net leverage dropped precipitously this month, nearly erasing the June-July increase. Again, that’s consistent with discretionary investors reducing equity length into this month’s selloff.

As the figure makes clear, there’s ample scope for hedge funds to lift their exposure. And if mutual fund cash balances were to fall close to the record-low levels seen in late 2021 (at the peak of the so-called “everything bubble”), that’d equate to nearly $50 billion in equity demand on Goldman’s estimates. Of course, that’s all contingent on the soft landing narrative — it depends on favorable macro conditions.

Goldman also cited the seesaw back in the bearish direction for the AAII spread and middling margin balances as evidence to support the contention that retail investors likewise “have capacity to add length to their portfolios.”

As for systematics, Kostin echoed the notion that mechanical strats have little in the way of room to add exposure and are “more likely to be sellers than buyers of stocks in coming weeks.” That’s the asymmetry discussion again. Regular readers are familiar.

Finally, 95% of S&P 500 companies are out of their blackout windows, suggesting the corporate bid is back in play. Goldman’s buyback desk has seen elevated activity this month, consistent with the seasonal.

The bottom line from Kostin: If the question is whether “the current level of equity length will limit upside for stocks,” the answer is a qualified “no.” “We find that US investors have room to further increase their exposure to equities,” he said, adding that “should the US economy continue on its path to a soft landing, we believe the recent decrease in equity length will be short-lived.”

Goldman “rolled forward” their three-month S&P target of 4,500 to year-end. Kostin retained a 12-month target of 4,700.