Citi Warns of Potential Major Selloff in US Tech Stocks Amid Overly Bullish Positioning

📝 SUMMARY: Citigroup Inc. ($C) has raised a red flag regarding the United States technology stock market, highlighting the potential risks due to the current bullish investor positioning. According to Citigroup strategists, including Chris Montagu, there is a concerning scenario in the tech-heavy Nasdaq 100 ($NDX), where wagers on stock declines have been entirely eliminated. This leaves the market in a vulnerable state, where investors are overwhelmingly positioned for continued gains, potentially setting the stage for a significant selloff if market conditions shift.

The US stock market has experienced a rally this year, with the S&P 500 ($.INX) reaching a record high, the first since 2022. This surge has been fueled by a combination of a stronger-than-anticipated economy and positive fourth-quarter earnings from major technology firms. However, despite these encouraging signs, investor sentiment is shifting towards caution. This change in outlook is partly influenced by indications from policymakers that the Federal Reserve may delay interest rate cuts, possibly not initiating them as early as March.

JPMorgan Chase & Co. ($JPM) strategist Marko Kolanovic also contributed to this cautious stance, expressing on Monday that he does not foresee the start of monetary easing until mid-year. Such predictions are crucial as they shape investor expectations and strategies.

The bullish trends observed in S&P 500 futures have recently stalled, yet the market's overall position remains net-long. This net-long positioning, while indicative of market optimism, also suggests that investors may not be fully prepared for a potential downturn. Citigroup's analysis implies that the current market setup, with its heavy bullish tilt, could exacerbate the impact of a selloff, potentially leading to a more extensive market disruption.

Given these dynamics, Citigroup's warning serves as a crucial alert for investors and market participants, highlighting the need for vigilance and a balanced approach in the face of potential volatility in the technology stock sector.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-02-06/citi-says-us-tech-stocks-face-risk-of-big-selloff-on-positioning