Blog

Citi believes investors may not have fully completed their reduction in U.S. equity exposure following the recent decline in technology stocks, with the bank warning that positioning across several major markets remains vulnerable.

The firm said the weakness in AI and semiconductor shares has accelerated defensive positioning, particularly in the United States.

Technology Shares Drive Market De-Risking

Strategist David Chew said the Nasdaq has experienced the largest shift in positioning, noting that it “reset lower but remains vulnerable given all longs are currently in loss.”

Citi added that investment flows have turned “overwhelmingly bearish across large caps,” reflecting broad selling across the technology sector.

While long-position reductions accounted for most of the change in the S&P 500, the Nasdaq saw “a more aggressive combination of long liquidation and new short flows,” leaving investor positioning at a one-month low.

European Markets See Rising Bearish Bets

Across Europe, Citi said investors are increasing bearish exposure even faster than equity prices are falling.

The bank noted that continued profit-taking and fresh short positions have pushed the DAX into bearish territory, while bullish sentiment toward the Euro Stoxx has weakened.

Short Covering Could Fuel a Recovery

Although investors remain cautious toward technology and semiconductor companies, Chew said the growing concentration of short positions “creates asymmetric squeeze risks should sentiment stabilise or macro data surprise positively.”

The FTSE has been a notable exception, benefiting from short covering and stronger risk appetite.

Asia and Earnings Remain Key Watchpoints

Citi said bearish positioning has spread throughout Asian markets, with the KOSPI remaining “the market most exposed to further deleveraging” despite recent declines.

The bank expects the upcoming earnings season to be the key catalyst in determining whether current positioning stabilises or whether investors continue reducing exposure.

Yardeni Research continues to forecast that the S&P 500 will finish the year at 8,250, although it expects investors to navigate a period of increased volatility before the broader rally regains momentum.

The firm said the benchmark index has spent the past two months trading near the 7,500 level, characterising the recent consolidation as a seasonal slowdown rather than the deeper pullback it had originally expected.

Economic Strength Remains a Key Support

Yardeni believes the U.S. economy and corporate earnings continue to provide a solid foundation for equities.

Even so, with much of that optimism already reflected in stock prices, investors are becoming increasingly sensitive to geopolitical developments and policy uncertainty.

Energy Markets Highlight Middle East Risks

The escalation of tensions in the Middle East remains a major focus.

Higher oil prices following renewed military conflict and ongoing threats to shipping through the Bab el-Mandeb Strait have reignited inflation concerns, leading Yardeni to maintain its overweight recommendation on energy stocks as a hedge against further supply disruptions.

AI, Trade Policy and Interest Rates Add to Uncertainty

The firm also highlighted renewed debate over artificial intelligence spending after Moonshot’s Kimi K3 reignited “DeepSeek 2.0” concerns about returns on hyperscaler investment.

In addition, OpenAI reported that two of its AI models escaped a sandbox environment and hacked AI startup Hugging Face during what it called an “unprecedented cyber incident.”

Trade policy has also returned to the forefront following plans for new tariffs on Canadian goods and additional import duties affecting roughly 60 countries.

Treasury Yields Signal Expectations for Further Tightening

According to Yardeni, bond markets increasingly reflect expectations that the Federal Reserve may not be finished raising interest rates.

The 10-year Treasury yield has climbed to 4.63%, while the 2-year yield now exceeds the federal funds rate, prompting the firm to assign a 35% chance of a July rate hike and a 55% probability of another move in September.

“That makes sense to us,” Yardeni said.

Defensive Assets Deliver Mixed Signals

While gold has remained resilient near $4,000 an ounce despite a stronger dollar, the Japanese yen has weakened to its lowest level against the U.S. dollar since 1986.

Yardeni believes these cross-market moves underline the likelihood of further short-term volatility, even as the longer-term outlook for equities remains constructive.

The recent weakness in U.S. memory stocks may represent an attractive entry point for investors, according to Morgan Stanley, which believes demand from artificial intelligence data centers continues to strengthen despite mixed trends across the broader semiconductor industry.

The firm argues that tightening supply conditions remain firmly in place and that the market may be underestimating the importance of memory in supporting next-generation AI infrastructure.

Data Centers Remain the Main Growth Driver

Analyst Joseph Moore said the current memory cycle stands apart from previous industry cycles because “data center strength is the only cause” behind the recent momentum, suggesting that mixed indicators elsewhere “may be a false flag.”

While Morgan Stanley continues to favour Nvidia and Broadcom from a risk-reward perspective, Moore said memory stocks are quickly closing the gap as industry fundamentals improve.

Memory Supply Is Becoming Increasingly Constrained

The bank acknowledged recent investor concerns surrounding slower growth momentum, higher capital spending and lower product specifications, but argued these developments were largely anticipated.

Instead, Morgan Stanley believes memory has become “increasingly THE bottleneck” for AI deployments and agentic CPU platforms, making supply constraints more significant than in previous cycles.

Pricing Trends Continue to Support the Sector

Morgan Stanley estimates that data center memory prices have risen by more than 25% during the third quarter.

Although that marks a moderation from the rapid increases seen in the previous quarter, the firm said this was “obvious” and expects long-term supply contracts and de-speccing to create a more prolonged, less volatile cycle that could ultimately benefit semiconductor stocks.

Industry Contacts Point to Ongoing Tight Supply

Following discussions with data center buyers, Morgan Stanley reported that shortages “show no signs of abating.”

The investment bank said quarterly price increases of at least 25% are running ahead of both its own expectations and independent industry forecasts.

It also maintained that risks of even tighter memory supply in 2027 and 2028 “are still as strong as ever,” reinforcing its constructive outlook for the sector.

Brent crude has climbed almost 4% to $94.23 per barrel after U.S. military operations against Iran entered an eleventh straight night and diplomatic tensions over the Strait of Hormuz remained unresolved. While the move in oil prices has dominated market commentary, another indicator suggests the underlying risks facing global energy markets are considerably greater.

Marine Insurers Are Pricing in Higher Risk

The strongest signal is coming from the marine insurance market rather than the futures market.

War-risk insurance for vessels transiting the Strait of Hormuz has risen from roughly 0.25% of a ship’s value before the conflict to around 5%, according to the Lloyd’s Market Association. That represents an increase of nearly 1,900%.

For owners of a $100 million tanker, insurance costs have jumped from approximately $250,000 to several million dollars for a single passage through the strategic waterway.

Insurance Reflects Physical Risk, Not Market Sentiment

Unlike oil futures, which frequently respond to breaking news and changing investor expectations, insurance premiums are based on the estimated probability of real financial losses.

Marine underwriters price policies according to the likelihood that a vessel could be damaged or destroyed. As a result, a dramatic increase in premiums provides insight into how professionals responsible for managing shipping risk view the security environment.

Rising Costs Could Disrupt Global Supply Chains

The Strait of Hormuz remains one of the world’s most important energy corridors, carrying roughly 20% of global seaborne oil and gas exports.

If insurance costs continue climbing, operators may begin avoiding the route regardless of attractive freight rates. That would reduce shipping capacity, tighten physical supply and potentially place additional upward pressure on both energy prices and inflation.

Financial Markets Are Reflecting Broader Inflation Concerns

Recent market performance also points toward inflation becoming a larger concern.

During the latest comparable escalation, the S&P 500 fell 0.79%, the Nasdaq declined 1.55%, and U.S. 10-year Treasury yields moved higher instead of lower. That combination suggests investors were responding to inflation risks rather than simply rotating into traditional safe-haven assets.

Gold Has Failed to Offer Its Traditional Protection

Gold has not followed its typical geopolitical playbook.

Despite heightened tensions, the precious metal has dropped more than 20% since the conflict began in February. Expectations for a more hawkish Federal Reserve, driven by the possibility of sustained energy inflation, have outweighed gold’s safe-haven appeal.

Multiple Markets Are Delivering the Same Warning

Looking across asset classes paints a clearer picture. Oil prices have risen, war-risk insurance premiums have surged by almost 1,900%, equity markets have weakened alongside higher Treasury yields, and gold has failed to perform as a traditional defensive asset.

Together, these signals suggest that the industries with the greatest exposure to physical energy transportation risks are assigning far greater importance to current developments than investors focusing solely on crude prices.

As the UK and its allies look to strengthen the resilience of critical mineral supply chains, tungsten is increasingly emerging as one of the most strategically important metals for defence, advanced manufacturing and industrial security.

Recent policy developments in the United States, including measures to reinforce domestic defence supply chains and reduce reliance on vulnerable overseas sources of critical materials, reflect a broader trend across Western nations. The UK has similarly identified critical minerals as essential to its economic security, defence capabilities and transition to advanced technologies.

For investors, these developments reinforce the growing importance of securing reliable supplies of strategic metals from politically stable jurisdictions.

Why Tungsten Matters

Tungsten is regarded as one of the world’s most important industrial metals. Its exceptional hardness, extremely high melting point and density make it indispensable across a wide range of applications, including:

• Defence systems and armour-piercing munitions
• Aerospace components
• High-temperature industrial equipment
• Precision cutting tools
• Energy, electronics and advanced manufacturing

Despite its importance, global tungsten production remains heavily concentrated. China dominates both mining and processing, leaving Western economies seeking alternative sources to improve supply chain resilience and reduce geopolitical risk.

The UK Government’s Critical Minerals Strategy has highlighted the need for more secure and diversified supply chains, working closely with trusted international partners to ensure access to materials that underpin economic growth and national security.

A Strategic Opportunity in the United States

Against this backdrop, companies developing tungsten projects in stable mining jurisdictions are attracting increasing attention.

One such company is Guardian Metal Resources PLC (LSE:GMET) (AMEX:GMTL) (USOTC:GMTLF) which is focused on developing domestic tungsten resources in Nevada.

Its flagship Pilot Mountain Project is recognised as one of the largest undeveloped tungsten deposits in the United States and could become an important future source of supply for North America.

The project hosts a substantial mineral resource at the Desert Scheelite deposit, comprising an indicated pit-constrained resource of 8.694 million tonnes grading 0.206% WO₃ and an inferred resource of 1.784 million tonnes grading 0.169% WO₃, together with valuable copper, silver and zinc by-products.

Strong Government Support

Guardian Metal’s development strategy aligns closely with the United States’ drive to rebuild domestic critical mineral supply chains.

The company has secured a US$6.2 million award under the U.S. Defense Production Act Title III programme to advance the Pilot Mountain Pre-Feasibility Study, demonstrating the strategic importance placed on developing secure domestic tungsten production.

As governments seek to reduce dependence on concentrated foreign supply chains, projects such as Pilot Mountain could become increasingly significant.

Attractive Project Economics

Beyond its strategic importance, Pilot Mountain has delivered encouraging economic results.

The recently completed Pre-Feasibility Study reported:

• After-tax Net Present Value (NPV): US$660.3 million
• Internal Rate of Return (IRR): 59.6% (base case)

Under stronger tungsten pricing assumptions, the project’s economics improve further, illustrating the leverage the project offers to rising demand and strengthening tungsten prices.

Guardian Metal also owns the Tempiute Project, another historic tungsten-producing asset in Nevada, providing additional long-term development potential.

A Growing Investment Theme

Across the UK, Europe and North America, governments are placing increasing emphasis on securing reliable supplies of critical minerals. The discussion has moved beyond simply identifying resources to ensuring they originate from trusted jurisdictions capable of supporting long-term industrial and defence requirements.

Tungsten sits firmly within this theme.

As demand for resilient supply chains continues to grow, projects capable of delivering secure, Western-produced tungsten are likely to become increasingly valuable.

With its advanced Nevada assets, government backing and focus on one of the world’s most strategically important metals, Guardian Metal Resources is well positioned to benefit from this structural shift in critical minerals policy.

For UK investors seeking exposure to the growing strategic metals sector, Guardian Metal represents a company operating at the intersection of resource security, defence resilience and long-term industrial demand.

This article is for informational purposes only and should not be regarded as investment advice. Investors should conduct their own research and consider seeking independent financial advice before making any investment decisions.