The stock market is flashing a signal that's previously preceded a 10% slump, Citi says

• Investors' vulnerability to nan S&P 500 is nan highest since mid-2023, Citi strategists said.
• They said that level of vulnerability astatine that clip was followed by a 10% descent successful nan pursuing months.
• "The positioning risks do emergence erstwhile markets get extended for illustration this," they said.

The marketplace is flashing informing signs of a imaginable banal slump arsenic S&P 500 vulnerability rises, Citi says.

The strategists said S&P 500 agelong positions are now astatine their highest level since mid-2023. At that time, that level of vulnerability to nan benchmark scale was followed by a descent of complete 10% successful nan adjacent 3 months.

"We're not suggesting investors should commencement to trim exposure, but nan positioning risks do emergence erstwhile markets get extended for illustration this," nan strategists, led by Chris Montagu, said successful a Monday note.

The uptick successful S&P 500 positioning comes arsenic nan scale has risen almost 23% this year.

The analysts property that bullishness to hopes for a soft landing for nan economy, positive a affirmative activity of third-quarter net truthful far.

"Bullish momentum continues for US markets, but peculiarly truthful for nan broader S&P 500. This evidenced by nan continuation of caller longs and, to a lesser extent, nan covering of shorts," nan analysts said.

"The continued 'soft landing' communicative mixed pinch a (so far) coagulated reporting play has nary uncertainty supported this momentum contempt nan uncertainty of nan US predetermination adjacent month," they added.

The analysts admit that compared to nan precocious positioning levels of mid-2023, nan existent levels investors aren't arsenic stretched arsenic they were backmost then, pinch little astatine consequence compared to nan past clip S&P 500 vulnerability had risen arsenic high.

"Current P&L, while positive, is by nary intends stretched, suggesting little superior astatine consequence and truthful little information to screen if markets pull-back," they said.

The analysts adhd that arsenic S&P 500 positioning has risen, positioning successful nan Nasdaq remains comparably low.

"S&P positioning has go moreover much stretched and has now topped 3-year highs. Investor condemnation for nan Nasdaq continues to beryllium debased pinch nett positioning astatine neutral. A communal characteristic for some markets is that 100% of nan short positions are retired of nan money, providing imaginable short-term upside consequence if markets proceed to drift higher and shorters person to cover," they said.