Beware of profit-taking selling pressure! U.S. stocks at historical highs may face a correction
Citigroup's report indicates that the bullish positions in the S&P 500 index have reached a three-year high, which may limit market gains in the short term due to profit-taking. As investors take profits, U.S. stocks are expected to face correction pressure after the presidential election. Nevertheless, analysts remain optimistic about the U.S. stock market in the medium to long term, anticipating that the S&P 500 index could rise to 6,600 points
According to the Zhitong Finance APP, the strategist team of Citigroup Inc has recently released a report stating that as investors begin to take profits, the massive selling pressure from this sharp sell-off may force the U.S. stock market to temporarily lose momentum after the epic rally following the U.S. presidential election.
Led by Chris Monta, the Citigroup strategist team noted that investors in the U.S. stock market increased their bullish bets last week, pushing the bullish exposure of the S&P 500 index to its highest level in three years. The historically high long positions in the tech-heavy Nasdaq 100 index and the small-cap benchmark Russell 2000 index also reflect "extremely bullish investor sentiment."
"The profits of the S&P and Russell indices have both increased, which may lead to recent profit-taking, thereby limiting further gains," the Citigroup strategist team led by Monta wrote in a report released on November 11.
As of Monday's close, the U.S. stock market benchmark—the S&P 500 index—hit a historic high, primarily based on the logic that investors in the U.S. stock market optimistically believe that the "America First" and "Make America Great Again" (MAGA) policy tone led by Donald Trump, who is set to return to the White House, will boost liquidity and fundamental expectations for the entire U.S. stock market in the long term. The so-called "Trump trade" has also boosted the long-dormant small-cap stocks in the U.S. stock market, which may see significant support from his administration's trade protectionist stance.
The S&P 500 index rose 2.5% as of last Wednesday's close, ending at 5929.04 points, marking the best performance for a benchmark index on the day after a presidential election in history. As of Monday's close, the S&P 500 index stabilized above the 6000-point mark, reaching an intraday historic high of 6017.31 points, and ultimately closing at 6001.35 points.
Regarding the outlook for the U.S. stock market until the end of 2024 and into the medium to long term in 2025, Wall Street firms generally hold a strongly bullish attitude. Several analysts on Wall Street remain bullish on U.S. stocks, with some even predicting a rise to 6600 points. After the results of the U.S. presidential election were announced, Goldman Sachs reaffirmed its forecast for the S&P 500 index to reach 6300 points within 12 months. This Wall Street financial giant's view on U.S. stocks has not changed with Trump's election as the 47th president of the United States, expecting strong earnings growth to support market gains by 2025.
Another Wall Street investment firm, Evercore ISI, even provided a more optimistic forecast, stating that the S&P 500 index will rise to 6600 points by mid-2025 (i.e., June next year), and remarked: "Trump's decisive and undisputed election as president of the United States, along with the Republican Party potentially winning big in both houses, is not anyone's baseline prediction." Evercore ISI also stated that the prospect of regulatory easing supports the U.S. stock market, saying, 'We believe prosperity is just ahead; President-elect Trump will quickly implement proactive economic growth policies, and the stock market will rise rapidly.'