A large number of bulls in the US stock market are "saying one thing and doing another": they claim to fear an AI bubble, but are frantically buying stocks!

A kind of contradictory sentiment of “saying one thing, meaning another” is currently dominating the US stock market. According to Chase Wind Trading Desk, Citi's latest report indicates that **investors are worried about high valuations and a potential AI bubble on one hand, but their actual portfolios demonstrate an extremely bullish ‘euphoric’ state, forming a group of ‘reluctant bulls’.** Recently, US stocks have seen a pullback, with the S&P 500 index falling 3% from its late-October high, and the tech-heavy Nasdaq 100 dropping 4.5%. Currently, **there is a significant disconnect between what investors say and what they do—they express anxiety over valuations, credit, and the labor market, but remain ‘steadfast’ in their allocation to US large caps.** Citi strategist Scott T Chronert wrote in the report: > "Recent client interactions suggest a large number of reluctant bulls in the market." This split mentality adds uncertainty to the market. Strong corporate earnings provide support, but extreme valuations and overly optimistic positioning make the market unusually fragile. If the story of profit growth shows signs of weakness, this delicate balance could be overturned. ## The Huge Gap Between Emotion and Positioning Citi’s report has detailed the enormous difference between investor sentiment and actual positioning. The report pointed out that **even though clients verbally express ‘ongoing concern’ over valuations, bubbles, credit, and labor, their market positioning readings are ‘euphoric’.** The Citi Levkovich Panic/Euphoria Index, which gauges market sentiment, currently reads 0.72, significantly above the “euphoria” threshold of 0.38. Historical backtesting shows that when this index enters the euphoric zone, the median return of the S&P 500 over the following year tends to be negative (–9.4%). Soaring valuations are another key concern. Citi’s PULSE model rates the ‘price’ indicator as “negative”, with multiple valuation metrics nearing historical extremes. The report shows that current US stock valuations are at historical highs. The S&P 500’s trailing P/E ratio has reached 25.3 times, ranking in the 95th percentile over the past 40 years, meaning valuations are higher than they were 95% of the time in the last 40 years. Moreover, price-to-book (P/B), price-to-sales (P/S), and enterprise value to EBITDA (EV/EBITDA) are in the 99th, 100th, and 100th percentiles, respectively. The report noted that historically, when the P/E is this high, the median market return for the following year is often negative (–11.2%). ## Profit Growth Has Become the Key Market Pillar Despite all the warnings, the market is not without its foundation. **Strong corporate earnings have become the key force supporting the market.** Citi rates the 'earnings' indicator in its PULSE model as ‘positive’. The data shows that Q3 2025 earnings season has been robust, with the number of companies beating expectations outnumbering those missing expectations by six to one. Meanwhile, analyst forecasts for future earnings continue to be revised upward, with the market broadly expecting S&P 500 EPS to reach $271 in 2025 and to further grow to $307 in 2026. Citi’s own forecast ($272 and $308) is roughly in line, demonstrating confidence in company fundamentals. However, the report also emphasizes that the market needs roughly 10% annualized compound EPS growth to justify current valuations. ## No AI Bubble Yet; Buy on Dips Recommended Regarding the hot topic of artificial intelligence (AI), Citi believes there is "no sign of a bubble at present", and investors can adopt a "growth at a reasonable price" (GARP) strategy, with roughly 50% of companies in their AI investment universe still showing attractiveness. Overall, Citi recommends that investors treat any further market pullbacks as "opportunistic" buying opportunities, as structural trends still seem intact. In terms of sector allocation, the report recommends increasing weights in financials, technology, and utilities, while reducing exposure to consumer staples and industrials. ~~~~~~~~~~~~~~~~~~~~~~~~ The above excellent content is from [Chase Wind Trading Desk](https://mp.weixin.qq.com/s/uua05g5qk-N2J7h91pyqxQ). For more detailed interpretation, including real-time insights and frontline research, please join [**Chase Wind Trading Desk Annual Membership**](https://wallstreetcn.com/shop/item/1000309) [](https://wallstreetcn.com/shop/item/1000309) Risk Warning and Disclaimer The market has risks, invest cautiously. This article does not constitute personal investment advice, nor does it take into account individual users' special investment objectives, financial status, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific circumstances. Investment is at your own risk.