Are Investors At Risk of a Stock Slump as S&P 500 Exposure Rises?
According to Citi strategists, investors’ exposure to the S&P 500 is currently at its highest level since mid-2023. This heightened level of exposure has historically been followed by a 10% decrease in the following months. While this does not necessarily mean investors should immediately reduce their exposure, it does indicate an increased level of risk when markets become overextended.
The analysts attribute the current bullishness in the market to expectations of a soft landing for the economy and positive third-quarter earnings. Despite uncertainties surrounding the upcoming US election, the analysts note that the momentum remains strong, especially for the S&P 500.
Compared to the high positioning levels observed in mid-2023, investors are not as stretched currently, with less capital at risk. This suggests that if the markets were to pull back, there may be less motivation for investors to cover their positions.
Interestingly, while S&P 500 positioning has gone up, Nasdaq positioning remains relatively low. This discrepancy could present short-term upside risks for the market if short positions begin to cover as prices continue to rise.
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