This market signal just occurred for only the second time since 1999. Here's what happened and what it means.

By Jamie Chisholm

Adding exposure to stocks is a 'risky proposition,' says Citi strategist

The S&P 500 sold off but it contained way more risers than fallers

The stock market's latest slide delivered a rare metric that last time produced an immediate bounce but trouble for equities in subsequent sessions.

That's the observation of Stuart Kaiser, head of U.S. equity trading strategy at Citi, who in a note published late Thursday said the sell-off does not yet offer a buyable dip.

Kaiser spotted that the S&P 500's SPX drop of 1.2% on Thursday was driven by a rotation out of many big cap technology plays and into sectors carrying less weight, such as commercial services, regional banks and transports.

The move reflected a big shift away from investing themes like growth, earnings estimate momentum and share price momentum, said Kaiser. "The AI trade bore the brunt of the mover lower," he added, with the AI bottleneck and power themes also badly hit.

The cause "felt like an accumulation of risks rather than one specific issue," said Kaiser. Worries about Meta's (META) AI strategy, surging French bond yields BX:TMBMKFR-10Y and higher oil prices (CL00), may have all played a part.

But regardless of the reason, the upshot was that even as the market-cap weighted S&P 500 fell sharply, the majority of equities within it rose, with the advancers beating decliners by 173. In market parlance that's known as good breadth.

Indeed, it was only the second day since 1999 that the S&P 500 delivered breadth above 150 but was down more than 1%, according to Kaiser. The previous time it happened was on Jan. 27, 2025, and the following day the index jumped 0.9%, but it then fell back three out of the next five sessions.

The latest market action leaves Kaiser wary, particularly given the so-far fairly sour reaction to the current corporate reporting season.

"We had expected light institutional positioning to support strong risk/reward into 3Q earnings. The reaction function the past 2 weeks suggests the bar for sentiment is higher than we anticipated," he said.

Citi continues to favor large cap and growth stocks that sport strong balance sheets, "but the positioning headwinds are clear and make adding exposure here a risky proposition," Kaiser added.

"So we stay with our previous view, but don't see this as a buy-able dip quite yet as positioning moves are hard to fade. For hedging, QQQ is the best solution for positioning risks while IWM is the best fit for credit, rate and policy concerns," Kaiser concluded.

QQQ is the ticker for the Invesco QQQ Trust Series I QQQ, a popular fund that tracks the tech-heavy Nasdaq 100 index. IWM is the ticker for the iShares Russell 2000 ETF IWM.

-Jamie Chisholm

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10-23-26 0535ET