UBS note of caution – says S&P futures & stocks liquidity declines to rarely seen levels

March 18, 2025 at 10:28PM

A UBS note highlights that liquidity in S&P 500 futures has dwindled to levels rarely seen since 2020, touching this threshold only four times in the past four years—most often in mid-summer. A similar trend is playing out in single stocks, exacerbating the magnitude of recent market moves.

This aligns with investor sentiment observed by UBS’s trading desk. While there is a cautiously optimistic tone toward equities in the near term, markets remain in a holding pattern as uncertainty over tariffs, immigration policy, fiscal budgets, and geopolitical conflicts weighs on confidence. As a result, flows have favoured hedge funds, while traditional long-only investors have largely remained on the sidelines. Buyers appear to be positioned higher, waiting for more clarity before making significant commitments.

In yesterday’s session, stocks that had already undergone substantial de-risking outperformed, while high short-interest names also rallied. However, the broader high short-interest basket failed to generate meaningful outperformance, suggesting that while investors may be adding to gross exposure, net exposure remains muted.

For now, market participants appear unconvinced that the S&P 500 will break above 6,000 in the near term, reinforcing the prevailing sense of caution.

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Update:

You’ll note the bulge in volume at the right hand side of this chart. Volume is not always liquidity.

This article was written by Eamonn Sheridan at www.forexlive.com.