Citigroup warns: S&P 500 exposure has reached levels seen before last year's 10% drop

Citigroup strategists said investors' exposure to the S&P 500 has reached levels last seen before the 10% decline in the index last year. Positions linked to the benchmark index are at their highest since mid-2023 and are expanding, according to strategists led by Chris Montagu. "We are not recommending investors start to reduce their exposure, but positions do become riskier when the market expands like this," they said.

The S&P 500 fell 10% from August to October as investors worried the Federal Reserve would keep interest rates high for longer to fight inflation. Tech stocks were hit hardest, exacerbating the broader market's decline.

This time, investors are more optimistic about the macro outlook as the Fed has started to cut interest rates as the economy has proven resilient. The S&P 500 is near its historical highs.

Montagu also said that earnings positions have eased relative to 2023, "which suggests less risk capital and therefore less motivation to liquidate if the market were to fall."