Citi, an American multinational investment bank, is warning that the global stock market is at its frothiest level since the 2008 financial crisis.
In an investor note published on June 5, analyst Beata Manthey noted that the bank’s proprietary Bear Market Checklist has now reached 10 out of 18 flags globally.
More specifically, in the U.S., the score is 11.5 out of 18, while in Europe, it sits at 5 out of 18. Historically, the analyst added, the reading has tended to accelerate once it passed 10. For comparison, 17.5 flags were recorded during the dot-com bubble.
“That said, we recognize that once the count reaches double digits, it has historically tended to rise more rapidly, signaling a potential acceleration in risk. Should more flags continue to turn on, this would increasingly signal that dips should not necessarily be bought,” Manthey noted.
However, Manthey admitted that the conditions have not yet become overexurbant, meaning that, while it is certainly flagging rising risks, Citi still maintains a constructive stance.
The stock market is at its frothiest since 2008
Factors that led to the frothiest stock market in nearly two decades are numerous, but the most notable ones include stretched valuations across in key sectors, increasingly optimistic investor sentiment driven by artificial intelligence (AI), and surging high-cap initial public offerings (IPO).
The bank itself stressed that no single indicator currently points to an imminent market peak. Rather, major downturns have historically occurred when a broad range of warning signals simultaneously reach extreme levels, which has not yet happened.
“While the yield curve has also started to flatten YTD, some other fast-paced indicators like credit spreads still remain tight, sending a more positive signal,” the note read.
Overall, then, Citi’s message is one of caution rather than a flat-out alarm. That is, risk is certainly building, and equities are getting more stretched, but a fully synchronized warning signal for a sustained downturn has yet to emerge.
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