So you’re scrolling through your portfolio, watching those green numbers climb, and that little voice in your head is whispering: “This feels too good to be true.” Well, congratulations—you might be witnessing a genuine stock market bubble. But before you start panic-selling everything and stuffing cash under your mattress, Citi has some surprisingly chill advice: Don’t. Sell. Yet.
Here’s the thing about bubbles that most people get wrong—they’re not like a balloon that pops the second you poke it. They’re more like that friend who keeps saying they’re “leaving the party in five minutes” but somehow sticks around for three more hours. Bubbles can keep inflating way longer than anyone expects.
The “Stay in Your Lane” Strategy
Citi’s research team, led by Adam Pickett, basically said what we’re all thinking but were afraid to admit: “Yeah, US stocks are probably in a bubble territory, but historically speaking, that’s not necessarily your cue to run for the hills.”
Their data shows that markets typically deliver strong returns after entering bubble territory. It’s only when you exit bubble land that things get spicy. Think of it like a really good party—the fun doesn’t stop the moment someone mentions it’s getting “too crazy.” It stops when the cops show up.
Why This Bubble Might Have Legs
The S&P 500 is up 35% since April (casual flex), and yes, all those fancy valuation metrics are flashing red like a Christmas tree. But Citi points out three reasons why this party might keep going:
1. This bubble is still a baby. Compared to historical bubbles dating back to 1929, we’re apparently in the “cute and harmless” phase, not the “oh god, what have we done” phase.
2. The Fed is actually helping for once. Unlike previous bubbles where the Federal Reserve was busy hiking rates like they were training for a marathon, this time they’re cutting rates. It’s like having the bouncer help you sneak drinks into the club instead of trying to kick you out.
3. More rate cuts might be coming. While everyone expects 75 basis points of cuts over six months, Citi thinks we might get 100 basis points. That’s basically the market equivalent of finding out happy hour got extended.
The Exit Strategy (AKA When to Actually Panic)
Citi isn’t telling you to ride this thing into the ground. They’ve got two specific indicators that’ll tell you when it’s time to head for the exits:
The POLLS Indicator: This measures market positioning, optimism, liquidity, leverage, and stress. When it hits 18 or higher, that’s your “maybe it’s time to call an Uber” signal. Right now it’s at 13, so we’re still in “one more drink” territory.
The “When the Generals Fail” Indicator: When 3 out of the 7 biggest S&P 500 stocks drop below their 200-day moving average, that’s the market’s way of saying “the cool kids are leaving.” This isn’t flashing red yet either.
The Bottom Line
Look, nobody has a crystal ball (despite what that guy on Twitter with 47 followers claims). But Citi’s research suggests that trying to time the exact top of a bubble is like trying to leave a party at the perfect moment—you’ll probably end up either missing the best part or staying too long and regretting it.
Their advice? Don’t fade the bubble, but definitely sell when it starts bursting. It’s the investment equivalent of “dance like nobody’s watching, but know where the exits are.”
Meanwhile, Bank of America just raised their S&P 500 target to 7,200, and Goldman Sachs is sitting pretty at 6,900. So while the bears are growling about crashes, the big banks are basically saying “hold my beer.”
Just remember: in the immortal words of every financial disclaimer ever, past performance doesn’t guarantee future results. But sometimes, it’s pretty fun to watch the show unfold.