US stocks struggle but Citi says we’ve seen the worst already

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The China reopening news that helped global stocks on Monday (with the US on holiday) hasn’t extended to the United States as inflation worries mount.

The S&P 500 is down 48 points and European bourses are at session lows.

In a note today, Citi said that peak bearishness for equities has passed:

“Over the near term, our high level takeaway is that the equity markets
have reached a peak bearishness related to Fed expectations and
recession risk,” Citi Strategist Scott Chronert wrote in a client note. “From here, we suspect that volatility will move more down the
single stock path. With the Q2 reporting period approaching, we expect
to see more evidence of this.”

They argue that speculators have been washed out.

“CFTC futures and options positioning data shows that asset manager net
length is near 10-year lows when we normalize notionals by aggregate
market cap or gross exposure,” the note said. “Leveraged fund
positioning contrasts this as the group appears to have taken profits on
shorts in recent weeks. Retail speculation has declined. The sharp
underperformance of social sentiment stocks, non-earning names and other
more speculative trades basically was hinting at this already. But TRF
trading data helps confirm high risk speculation is working its way out
of markets.”