Citi has issued a warning that bearish positioning is intensifying in the Nasdaq and S&P 500, with roughly 80% of long Nasdaq positions now underwater, according to strategist David Chew. The note, released Tuesday, highlights that while overall positioning appears stable, the imbalance between long and short bets leaves the index vulnerable to a cascade of selling if these losing positions are unwound. The Nasdaq 100 is on track for its worst June since 2022, falling nearly 2% this month, while hedge funds sold U.S. tech stocks at the fastest pace in over a decade, Goldman Sachs data shows.
At the same time, money is rotating into small-cap stocks, with bullish bets on the Russell 2000 reaching extended levels. In Europe, positioning has weakened, and the Hang Seng is described as the most bearish index globally, with extremely profitable short positions that could trigger a short squeeze. Citi’s note suggests that fragile conviction is limiting upside in European indexes like the EuroStoxx and DAX.
However, Wells Fargo offers a contrasting view, predicting a strong summer rally in July. The bank cites historic seasonality—the first half of July has been the strongest period for the S&P 500 over the past century with an average return of 1.35%—along with improving investor sentiment, delayed AI-related IPOs that reduce equity supply, and an expected 22% year-over-year earnings growth. The bank raised its year-end S&P 500 target to 7,950. Analysts also point to July’s perfect 10-year record of positive returns, averaging 3.51%, per Schaeffer’s Research. The pullback in June was largely driven by AI spending concerns and quarter-end rebalancing, but the delayed IPOs of OpenAI and Anthropic may actually ease pricing pressure on AI models, potentially extending the AI investment cycle.
