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Investors’ exposure to the S&P 500 is the highest since mid-2023, Citi strategists said.
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The level of exposure at that time was followed by a 10% decline in the following months, they said.
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“Positioning risks rise when markets expand like this,” they said.
Citi says the market is flashing warning signs of a potential decline in stocks as exposure to the S&P 500 rises.
Long positions in the S&P 500 are now at their highest level since mid-2023, strategists said. At that time, this level of exposure to the benchmark index was followed by a decline of more than 10% in the following three months.
“We are not suggesting investors start reducing exposure, but positioning risks rise when markets expand like this,” the strategists, led by Chris Montagu, said in a note on Monday.
The rise in S&P 500 positions comes with the index up nearly 23% this year.
Analysts attribute this upward trend to hopes for… Soft landing For the economy, in addition to a positive wave of third-quarter profits so far.
“The bullish momentum continues in US markets, but particularly for the broader S&P 500 index. This is evidenced by continued new long positions and, to a lesser extent, short covering,” the analysts said.
“There is no doubt that the ongoing ‘soft landing’ narrative combined with the strong reporting season (so far) has supported this momentum despite uncertainty over the US elections next month,” they added.
Analysts acknowledge that compared to high positioning levels in mid-2023, investors’ current levels are no longer as stretched as they were then, with exposure to less risk compared to the last time S&P 500 exposure rose to such a high level.
“While current P&Ls are positive, they are by no means stretched, suggesting there is less capital at risk and therefore less incentive to hedge if markets decline,” they said.
Analysts add that while S&P 500 positions are rising, Nasdaq positions remain relatively low.
“S&P positions have become more extended and are now at 3-year highs. Investor sentiment in the Nasdaq remains low with net neutral positions. A common feature of both markets is that 100% of short positions are out of the trading range. They said the funds, which It provides potential short-term upside risk if markets continue to drift higher and short speculators are forced to cover.
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