- Citi says last week's selloff has reduced crowded positioning in U.S. equities, creating a healthier setup.
- Yet Nasdaq bullish bets remain elevated, leaving markets vulnerable if tech catalysts disappoint.
- In Europe, positioning is improving, while South Korea's KOSPI stays highly exposed to AI-driven narratives.
Positioning cools, but tech exposure still a risk
Citi strategists noted that last week's equity selloff helped thin out crowded positions in U.S. stocks, setting the stage for a more balanced near-term market. The improvement in positioning metrics suggests some of the froth has been removed, reducing the risk of a disorderly unwind.
However, the bank warned that bullish bets on the Nasdaq remain stubbornly high. “Nasdaq positioning is still elevated relative to history, which could exacerbate any downside if upcoming tech catalysts, such as earnings or product announcements, fall short of expectations,” the note said. The tech-heavy index has been a focal point for AI-driven optimism, and any setback could trigger outsized losses.
Regional divergence
European equity positioning is also showing signs of improvement, according to Citi, as investors rotate into the region on attractive valuations and improving economic data. In contrast, South Korea's KOSPI index remains highly sensitive to AI-themed flows. The market's heavy concentration in semiconductor and tech stocks makes it particularly vulnerable to a shift in the AI narrative, a risk that Citi flags as elevated.
A Citi spokesperson declined to comment further on the note. The bank's analysis underscores the delicate balance markets face as they navigate a period of high concentration in a few key themes. While the overall backdrop has improved, the lingering risk in tech-heavy indices could quickly reverse the gains if catalysts disappoint.
Correction: An earlier version of this article misstated the timing of the selloff. It occurred last week, not this week.