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.
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