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Investor exposure to the S&P 500 is at its highest since mid-2023, according to Citi strategists.
They said exposure levels at the time had slid by 10% in subsequent months.
“Such an expansion in the market certainly increases positioning risk,” they said.
As exposure to the S&P 500 index increases, the market is showing warning signs of a potential decline in stock prices, Citi said.
Strategists said long positions in the S&P 500 are currently at their highest level since mid-2023. At the time, the level of exposure to the benchmark index fell by more than 10% in the following three months.
“While we are not saying investors should start reducing their exposure, the risk of positioning increases when markets extend like this,” strategists led by Chris Montague said in a note Monday. Ta.
The S&P 500 index is up nearly 23% this year.
Analysts attribute this bullishness to expectations for a soft economic landing, as well as a strong wave in third-quarter profits so far.
“The bullish momentum continues in the U.S. market, particularly across the S&P 500, as evidenced by the persistence of new longs and, to a lesser extent, short covering,” the analysts wrote. Ta.
“Despite the uncertainty of next month’s US election, continued ‘soft landing’ stories and a solid coverage season (so far) are sure to support this momentum,” they wrote. added.
Analysts say that compared to high positioning levels in mid-2023, investors’ current levels are less stretched back then and represent lower risk than the last time S&P 500 exposure rose this much. I admit it.
“Current profits and losses are positive but by no means excessive, suggesting that there is less capital at risk and therefore less incentive to cover in the event of a market pullback.” said both men.
Analysts added that while the S&P 500 Index’s positioning has increased, the Nasdaq’s positioning remains relatively low.
“The S&P positioning has widened further and is now above a three-year high. Investor confidence in the Nasdaq remains low, with a net positioning of neutral. The commonality between both markets is that short positions % out of the market, creating potential short-term upside risk if the market continues to rise and shorts have to cover,” they said.
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