Citi believes the recent technology-driven market decline has significantly weakened investor positioning across global equity markets, warning that the adjustment in U.S. stocks may not yet be complete.
The bank said the selloff in artificial intelligence and technology shares has prompted widespread risk reduction, leaving several major markets in a more defensive position.
Nasdaq Sees the Sharpest Shift in Positioning
Citi strategist David Chew said the most notable change has occurred in the Nasdaq, where positioning “reset lower but remains vulnerable given all longs are currently in loss.”
According to the bank, the technology downturn has triggered broad-based selling across U.S. equities, with investment flows becoming “overwhelmingly bearish across large caps.”
While positioning in the S&P 500 has weakened mainly through investors unwinding long positions, Citi said the Nasdaq has experienced “a more aggressive combination of long liquidation and new short flows,” pushing positioning to its lowest level in a month.
European Investors Continue to Reduce Risk
Citi also highlighted growing caution across European markets.
The bank said bearish positioning is increasing more rapidly than share prices are declining, as investors continue taking profits and opening new short positions.
As a result, the DAX has moved into outright bearish territory, while bullish positioning in the Euro Stoxx has also retreated.
Crowded Short Positions Could Trigger a Rebound
Chew said recent trading activity reflects investor concerns surrounding technology and semiconductor stocks.
However, he cautioned that the expanding number of bearish positions “creates asymmetric squeeze risks should sentiment stabilise or macro data surprise positively.”
Among the major European indices, the FTSE stood out as a relative outperformer, with positioning improving as investors covered short positions and increased risk exposure.
Asia Remains Under Pressure
Across Asian markets, Citi said selling pressure has remained widespread.
The bank identified South Korea’s KOSPI as “the market most exposed to further deleveraging” because investor positioning remains elevated despite the recent decline in the index.
Earnings Could Determine the Next Move
Looking ahead, Citi believes the upcoming earnings season will play a crucial role in determining whether investor positioning begins to stabilise or whether further unwinding takes place across equity markets.
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