LIVE MARKETS-The era of "reluctant bulls" in US stocks - Citi

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THE ERA OF "RELUCTANT BULLS" IN US STOCKS - CITI

While concerns of a possible "AI bubble" and stretched valuations in U.S. stocks remain front and center when conversing with their clients, analysts at Citi found that while sentiment appears nervous, allocations to U.S. large-cap equities remain steadfast, thus labeling investors as reluctant bulls.

"Client conversations highlight concerns about the sustainability of the AI-driven market, potential credit contagion and labor/consumption setup," Citi analysts said in a note dated October 24.

The brokerage said its measure of the Levkovich Index - a market sentiment gauge that shows market panic or euphoria - is at its highest levels outside of the Tech bubble and post-pandemic recovery trade and denotes "euphoria" positioning.

Noting this contradiction in sentiment measures and client conversations, Citi said many investors are "reluctant bulls" in the current market environment.

"Even as markets have climbed higher, we have not seen bullish spikes in feelings surveys," Citi analysts said.

While sentiment may be shifting, Citi said positioning in U.S. equities remains robust with mutual fund and ETF aggregate allocation standing at 48%, compared to 13% for world stocks and 17% for fixed income.

"In any event, our point is that markets likely will continue to navigate euphoric positioning but through the lens of quizzical/unsettled sentiment," the analysts said.

(Shashwat Chauhan)

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