26.06.25 - Big institutional money flow?

Yesterday’s equity market action presented a rare and telling pattern. During European trading hours, indices reflected the signature of significant institutional flows. Was a major bank offloading equities throughout the day?

Markets: European indices steadily declined throughout the day, with US equities following suit. US indices managed to break free from this downtrend in the final hour of trading.

My view: Despite a high number of economic and geopolitical uncertainties, markets are approaching record highs. This recent rally has been predominantly driven by retail investors, with institutional investors largely sitting on the sidelines. The critical question in the coming days or weeks is which camp will prove correct. Retail investors, fueled by the so-called TACO trade (Trump Always Chickens Out) and speculation, bought heavily during the post-correction bounce after “Liberation Day.”

How will institutional investors respond? Will they be forced to chase these rising indices at record levels, potentially fueling a further rally? Or, given current valuations, will they use these elevated levels as an opportunity to continue reducing risk in their portfolios? Based on my experience working with large financial institutions, yesterday’s market action pointed to a significant seller in equities, unloading throughout the day.

As the deadline for the suspended tariffs approaches, we should expect market sensitivity to this issue to resurface. These tariffs were put on hold for 90 days and have largely been out of the spotlight for the past 80 days.

Reflecting on my own positioning, I admittedly did not follow the retail crowd and missed out on the recent upside, anticipating further downside as discussed in my previous views. The market, however, appears unprepared for the looming tariff concerns. This underpricing of risk is why I expect higher volatility in the near future, with the potential for a downside correction. Q2 earnings will likely serve as the next key catalyst, driving the market in one direction or another based on the results.

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