It appears that the "Great Conundrum" we discussed on several occasions back in 2019, is back.
As a reminder, we framed said conundrum as follows: in a time of record equity outflows, stocks kept rising, and rising, and rising, prompting questions just who is buying.
Today, it is Citi's turn to dwell on this topic, with strategists Beata Manthey and Robert Buckland writing that the 31% global equity rally since March lows has probably been driven by short covering, given the $120b outflows the asset class suffered over the period.
As Bloomberg reports, the two strategists also wrote that a move higher will require new longs and inflows, noting that YTD redemptions from European and EM equity funds amount to 2.9% and 3% of AUM, respectively. Separately, Bank of America's Michael Hartnett suggests that the "smart money" continues to puke, with the bank's high net worth private clients recording the largest week of equity selling since Jun'19, as they buy gold.
At the same time, and perhaps explaining some of the rally, the Citi analysts note that the bank's Panic/Euphoria model is now back solidly in the Euphoria stage, suggesting there is a 70% likelihood markets are lower in the following 12 months.