The recent record run by the

U.S. stock market

appears to be in jeopardy as investors retreat from their strong bullish positioning.

Flows into U.S. equity funds have been weak compared with levels seen earlier in the year, although they have clawed their way back to positive, according to RBC Capital Markets. Meanwhile, flows from American and European investors into U.S.- and non-U.S. domiciled equity funds have been soft, and global flows excluding the United States have been positive but with deteriorating trends.

“When we zoom out, we think this is evidence of buyers’ fatigue,” Lori Calvasina, head of U.S. Equity Strategy Research at RBC Capital Markets, wrote in a note to clients on Monday.

Calvasina’s concerns centre around elevated equity valuations, a decline in bullish sentiment and seasonal weakness, with September being historically the worst month of the year for returns in the

S&P 500 index

.

“Importantly, within U,S, equity funds retail flows have faltered recently,” Calvasina added. Specifically, passive flow from retail investors into U.S. equity funds is turning negative, reversing prior strength, according to RBC data.

A measure of aggregate equity positioning by Deutsche Bank has slipped over the last three weeks but remains modestly above neutral. Positioning by professional portfolio managers is now moderately underweight, down from neutral. And commodity trading advisors, or CTAs, which use systematic strategies to trade derivatives, trimmed their long equity exposure in the U.S. last week, especially in the S&P 500 and the Nasdaq 100 indexes, Deutsche Bank strategists including Parag Thatte wrote in a note on Monday.

U.S. stocks climbed on Monday after Friday’s dip off the weaker-than-expected

jobs report

. The S&P 500 rose 0.2 per cent to 6,495.15, just points away from the all-time high of 6,502.50 it hit on Thursday, as traders piled into bets that the

U.S. Federal Reserve

will cut interest rates next week.

But some trading desks are warning that the Fed’s decision on Wednesday could turn into a  “sell the news” event, with investors unloading stocks after the central bank announces its plans.

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The options market also is signalling concerns about the rally, at least in the near term. The five-day moving average of total net volume in call options, which give investors the ability to buy the underlying stock, fell last week. The move, which is calculated as call options volume minus put options volume, was largely driven by a drop in contracts for single stocks, which sank to the lowest level in a month, Thatte added.

Notably, investors are getting increasingly bearish about large capitalization shares relative to small caps. In the options market, the so-called skew for exchange-traded funds (ETFs) tracking the S&P 500 and the Nasdaq 100 is steep, while the same measure for ETFs trading the small-cap Russell 2000 Index is flat, signalling that traders see more downside risk for large-cap stocks, according to Cboe Global Markets data.

“Skew continued to steepen as hedging demand increased,” Mandy Xu, Cboe’s head of derivatives market intelligence, wrote on Monday.

Bloomberg.com