U.S. equity positioning has improved in the aftermath of last week’s market decline, though pockets of concentrated exposure mean downside risks remain, Citi said in a note on Tuesday.
The bank described the U.S. setup as "incrementally cleaner on a P&L basis following last week's selloff," pointing to a moderation in S&P 500 positioning and a compression of profits on Nasdaq long positions that had been elevated. Despite those improvements, Citi cautioned that bullish positioning in the Nasdaq remains extended, leaving the aggregate market landscape "improved but still vulnerable to downside risks."
Citi highlighted a split market structure in the U.S. - heavy short building on one side and persistent legacy long positions on the other. While some de-risking has occurred, many Nasdaq longs remain in profit, which in the bank's view skews the potential outcomes toward significant downside should upcoming technology-focused catalysts fall short. In that scenario, Citi warned, disappointment could prompt substantial long liquidation.
In Europe, Citi sees a transition away from capitulation. EuroStoxx has moved up from deeply bearish territory as shorts are covered, and the DAX, FTSE and Euro Banks are shifting back toward neutral territory. The bank noted that improved profit-and-loss dynamics have eased pressure on existing positions, creating a more constructive near-term backdrop across the region.
Asia presents the most divergent risk picture, Citi said. The KOSPI stands out with elevated bullish positioning, leaving it highly exposed to any negative change in the AI narrative. China's A50 is also extended but, according to Citi, its positions are supported by more moderate profit levels, which reduces the likelihood of immediate selling pressure. Nikkei positioning was described as constructive, while the S&P/ASX 200 and Hang Seng continue to lag, exhibiting persistent bearish positioning.
Overall, Citi's assessment frames a market that has de-risked in parts following last week's weakness but still carries concentrated exposures and regional differences that could amplify downside moves if key catalysts disappoint.