Over the past two years, U.S. equities US equities has had an exceptional bull cycle (even considering the sharp adjustments at the beginning of 2Q25), driven by technology concentration and technology concentration and the artificial intelligence artificial intelligence. The "Magnificent 7"(Apple, Microsoft, NVIDIA, Amazon, Alphabet, Meta and Tesla) are among the major players, at the expense of a market breadth which has gradually deteriorated.

By early 2025 it was almost consensus opinion that a market so concentrated and with such demanding valuations would end badly, but a trigger was needed for a healthy adjustment, and that was fueled by the President Trump's tariff rhetoric, which began to cool risk appetite. There was even talk that "American exceptionalismexceptionalism" could be coming to an end, which, by the way, ended up being an exaggeration, ended up being an exaggeration.

Thus, the so-called "Liberation Day"in early April was a "good excuse" for a market adjustment that reached 20% for the S&P 500. retail investor investor saw the opportunity and bought aggressively, reviving the "Buy the Dip" narrative. "Buy the Dip" narrative..

From that point on, the market has been debating between hard data (production, employment, consumption, etc.), which have not shown significant deterioration, and continue to point to a relatively resilient real economy. resilient real economy and moderate inflation. This contrasts with soft survey data This contrasts with soft survey data that had been suggesting a loss of confidence in the economy and rising inflationary pressures from announced tariffs, resulting in high uncertainty about the trajectory of the economy.

Retail investor participation in the U.S. market has become increasingly relevant in recent years. According to data from J.P. Morgan, retail already accounts for around 30% of the total market volume.

So far in 2025, retailers have purchased more than US$ 155 billion in U.S. stocks and ETFs. This is the largest cumulative volume in at least three yearsyears, showing a profound change in market dynamics. Last week they were net buyers again, with flows concentrated in names such as. NVIDIA, Tesla, Palantir and the ETFs SPY y QQQ. This behavior is typical of a late market phase: retail is running behind momentum, while institutional investors wait for confirmation before coming back strongly.

The prominence of retail has several explanations:

• The democratization of access through platforms such as Robinhood or Fidelity has facilitated commission-free trading.
• Powerful narratives such as the artificial intelligence boom have reinforced the idea of "not staying down".
• The "Buy the Dip" mentality "Buy the Dip" mentality was consolidated after the April downturn.
• The social networks (Reddit, X, TikTok) amplify herd behavior.
• Many young investors, inexperienced in long bearish cycles, show low risk aversion. low risk aversion.

The result has been a flood of flood of retail flows, which has sustained the market even without the support of large capital managers.The result has been a flood of retail flows, which has sustained the market even without the support of large capital managers.

Meanwhile, institutional investors remain cautious. According to Barclays (Who Owns What - Positioning not hot everywhere30-Jul-2025), despite the S&P500 reached new highs following the approval of the One Big Beautiful Bill and some moderation in tariff uncertainty, flows into equities for the year remained weak versus cash and fixed income..

During this period there was no "institutional frenzy "institutional frenzy".. The funds long only funds remained close to neutral positions, with cash levels cash levels above their historical average, reflectingreflecting prudence. Hedge funds reduced their net exposure in previous months, although recentlyalthough they have recently have begun to increase positions in U.S. equities.IN PARALLEL, HEDGE FUNDS REDUCED THEIR NET EXPOSURE IN PREVIOUS MONTHS. In parallel, systematic funds have only modestly increased their exposure to U.S. equities, leaving institutional funds with only a modest increase in exposure to U.S. equities.institutional funds have only modestly increased their exposure, leaving aggregate position close to neutraland with to continue increasing their exposure if market momentum consolidates..

The reasons are well known: valuations of more than 22 times 12-month earnings, political, fiscal and tariff uncertaintyuncertainty, and a and a worrying lack of breadth. Although the indices are showing gains, most of the gains came from a small group of stocks, reinforcing the perception of a fragile market dependent on a few names.This reinforces the perception of a fragile market dependent on a few names.

A rally sustained primarily by retail investors has important important implications:

• The emotionality can trigger abrupt sales in the face of narrative changes.
• The lack of "institutional "anchors makes the market more sensitive to news.
• Concentration in high beta stocks increases the implied risk.
• The complacency Buy the Dip" complacency can lead to ignoring objective macro signals.
• Increased use of leverage and derivatives increases fragility: retail is participating with leveraged positions in short-term options and leveraged ETFs.

So what do institutional investors expect? Rather than optimistic signals, what sets the tone today are the predominant concerns in the market. prevailing concerns in the market. One of the biggest tail risks for investors is that the trade war will trigger a global recession. trade war triggering a global recessiona global recession, something that worries 38% of respondentswhile 20% fear that inflation will inflation will prevent the FED from cutting rates, which could keepwhich could keep financial conditions tighter for longer.

Against this backdrop, institutional investors believe that the risk-return ratio does not yet justify an aggressive entry into the market.. The S&P rally500 in 2025 has been powerful but fragile: retail leads with enthusiasm while while large managers remain cautious, leavingleaving the market more sensitive sensitive to macro shocks and surprises.. The narrative of the Buy the Dip narrative remains strong, but for institutional institutional flows to return in force will require a will require a clear clear catalyst: profit improvement, relaxation of tariff risks, o macro signals supporting the continuation of the Fed's tapering cycle.. Until then, the market's advance rests on a narrow foundation that is open to surprises.

Tomas Haase
Strategy Analyst