S&P 500 futures liquidity drops to rare low levels

A note from UBS warns that liquidity in S&P 500 futures has dropped to low levels not seen since 2020. This situation has occurred only four times in the last four years, particularly in mid-summer. A similar decline is also happening in single stocks, which is increasing the impact of recent market movements. Investor sentiment is cautious but somewhat optimistic about stocks in the short term. However, uncertainty surrounding tariffs, immigration policies, fiscal budgets, and geopolitical issues is making investors hesitant. Currently, hedge funds are gaining more investment flows, while traditional long-only investors are mostly staying out of the market. Many buyers are waiting for clearer conditions before making major financial moves. In the most recent market session, stocks that had already decreased risk in their valuations performed better. Stocks with high short-interest also saw some gains. However, overall, the basket of high short-interest stocks did not demonstrate significant outperformance. This indicates that while some investors are increasing their overall exposure, they are still cautious. At this point, many market participants are doubtful that the S&P 500 will exceed 6,000 anytime soon. This reinforces a general sentiment of caution in the market.