This report introduces the BBVA US Equity Positioning Indicator (USPI), a tool designed to measure investor risk appetite by mapping capital flows and positioning across options, ETFs, mutual funds, futures, cash, and systematic strategies. By combining this positioning framework with BBVA’s six-stage US growth model (see - A six-stage asset cycle based on a proprietary leading cyclical/inflation index – 3 February 2023) and Financial Conditions Index (FCI) (see Introducing BBVA FCI – 16 September 2025), investors gain a comprehensive view of market turning points and volatility risk. Core insights:

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   Mismatches in Sentiment Drive Volatility: When equity market sentiment decouples from underlying economic sentiment, markets become vulnerable to sharp corrections or sudden rebounds, even in the absence of a macro-economic shock.

  
  


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   Flushing Out Speculative Leverage Helps Clear Market Distortions: High concentrations of leveraged, speculative positioning—such as the recent surge in AI equities—can trigger severe downturns. As demonstrated by the Korean Kospi index’s 40% correction and subsequent rebound, flushing out crowded speculative leverage helps clear market distortion, stabilising volatility for long-term investors.

  
  


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   Price Dynamics Result in an Asymmetric Market Impact: While share ownership is inherently a zero-sum accounting identity—where every long position is offset by a short or neutral stance—the price dynamics are non-linear. Because prices are set at the margin by urgent order flow, rapid liquidations by systematic or leveraged traders inflict widespread, asymmetric wealth creation or destruction.

  
  

Our USPI is currently at 0.73x, at its highest levels since January of this year. Our positioning indicator troughed in early April this year and since then we have seen steady inflows into equity markets. The composite USPI at current overweight levels signals heightened vulnerability to short-term pullbacks.