The era of “reluctant bulls” in US stocks – Citi

While concerns about a possible “AI bubble” and rising valuations of US stocks remain top of mind when talking to their clients, analysts at Citi found that while sentiment appears jittery, allocations to US large-cap equities remained stable, calling investors reluctant to be bullish.

“Client conversations highlight concerns regarding the sustainability of AI-driven markets, potential credit contagion, and labor/consumption governance,” Citi analysts said in a note dated Oct. 24.

The broker said that the Levkovich Index measure – a measure of market sentiment that indicates market panic or euphoria – was at its highest level outside the Tech bubble and post-pandemic recovery trade and indicated a position of “euphoria”.

Noting contradictions in sentiment measures and client conversations, Citi said many investors are “reluctant” in current market conditions.

“Even as the market has edged higher, we have not seen any bullish spike in the sentiment survey,” Citi analysts said.

While sentiment may be changing, Citi said positions in US equities remain strong with an aggregate allocation to mutual funds and ETFs of 48%, compared with 13% for world stocks and 17% for fixed income.

“However, our point is that markets will likely continue to be euphoric but through the lens of confused/uncertain sentiment,” the analysts said.
Source: Reuters (Shashwat Chauhan)