This week’s sell-off may have rattled nerves, but Citi (C) insists it’s not the start of something bigger. Instead, it looks more like investors shuffling money around, taking profits in hot names, and parking cash in safer corners of the market.
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Tech names have been hit hardest, with stocks like Palantir (PLTR) sliding sharply. But the S&P 500 (SPY) is still only a couple of percentage points off record highs after a huge rally since spring. Citi strategist Scott Chronert said that two days of selling doesn’t make a trend.
What he sees is a classic textbook rotation. Money is flowing out of stretched tech stocks and into defensive sectors like healthcare, utilities, and real estate. A five percent pullback, he argues, would still be normal. For a real correction of ten percent or more, the market would need a proper catalyst.
What Could Trigger Something Bigger
So what would it take to turn a rotation into a real sell-off? That’s where the unknowns come in. Jerome Powell’s speech at Jackson Hole could set the tone, especially if he sounds more hawkish than expected. Retail earnings and fresh jobs data could swing expectations for the Fed’s September meeting. Then, in October, third-quarter results will give investors their first real look at how resilient corporate profits are under higher rates and sticky inflation.
In other words, the potential triggers are out there, but none of them have fired yet.
Furtheremore, Citi isn’t changing its big picture outlook. The bank still sees the S&P 500 climbing toward new highs by year-end if the economy holds steady. And if the market does fall harder than expected, Chronert thinks it would likely set up a buying opportunity rather than mark the start of a bear market.
Right now, this isn’t the start of a crash. Investors are just rotating into other assets. But the longer the market drifts without a proper catalyst, the more every speech, data release, or earnings call will be watched for the spark that could turn a routine shuffle into something much bigger.
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