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Investors are 'reluctant bulls' amid market euphoria and valuation concerns - Citi's Chronert

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  Published in Stocks and Investing on Monday, October 27th 2025 at 12:25 GMT by Seeking Alpha
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Investor Sentiment Remains Mixed Despite Market Euphoria, Citi Analyst Notes

The U.S. equity market has continued its upward trajectory, with the S&P 500 and Nasdaq Composite posting gains well into their record highs. Yet, a recent commentary by Citi’s chief market strategist, Ranjan Chronert, highlights a paradox that has been quietly brewing beneath the surface: investors are increasingly reluctant to embrace a full‑scale bull run even as the market appears buoyant. In his piece, “Investors are reluctant bulls amid market euphoria and valuation concerns,” Chronert argues that valuation pressures and a still‑volatile risk‑off environment are keeping the average investor on the sidelines.

Euphoria Meets a Stubborn Put‑Call Ratio

Chronert’s analysis begins by revisiting a classic indicator of market sentiment: the CBOE put‑call ratio. While the ratio has dipped into the “bullish” territory for a few consecutive days—a sign that investors are purchasing more calls than puts—the level is still far from the historic lows that would signal an exuberant market. In the chart Chronert includes (see Figure 1), the ratio hovered around 0.7 in mid‑August, a level that historically corresponds to a “neutral” stance rather than outright optimism.

The put‑call ratio is often a lagging indicator, and Chronert notes that the recent dip is partly driven by short‑term, tactical trades rather than a sustained shift in risk appetite. “You can have a bullish sentiment on a day‑to‑day basis that doesn’t necessarily translate into a broader shift in the market’s risk‑taking profile,” he writes. The author warns that investors might be reacting to short‑term catalysts—such as favorable earnings reports from technology firms—rather than a genuine belief that valuations are justified.

Valuation Concerns Remain at the Forefront

A core theme in Chronert’s commentary is the persistence of valuation concerns. He cites the price‑to‑earnings (P/E) ratio for the S&P 500, which currently sits at approximately 32—roughly 1.8 times its 10‑year average. When the market’s earnings prospects are uncertain or potentially overstated, investors tend to be more cautious. Chronert points out that while the market has made gains of around 18% in the past year, this rally has largely come from a handful of mega‑cap names, such as Apple, Microsoft, and Amazon, creating a concentration risk that could temper broader market enthusiasm.

The analyst also references a survey conducted by the CFA Institute (link: https://www.cfainstitute.org/en/research/foundation/2024/financial-future). In the survey, 38% of respondents identified valuation concerns as a primary reason for hesitancy to increase equity exposure. Chronert interprets this data as evidence that the market is approaching a “valuation plateau” where further upside may be limited without a corresponding increase in earnings growth or a fundamental shift in risk perception.

Volatility Is Still a Key Barometer

Another point Chronert makes is that implied volatility, as measured by the VIX, remains elevated. Even though the VIX has fallen from its peak of 30+ during the summer, it still sits at roughly 20—higher than the average level of 18 for the past year. He explains that higher volatility implies a wider range of potential outcomes, which naturally discourages risk‑seeking investors. “Volatility is a sentiment gauge,” he says. “When it’s high, even bullish investors may be holding back because they fear a correction.”

Chronert notes that institutional investors, in particular, are monitoring volatility more closely. The article links to a recent study by Vanguard (link: https://about.vanguard.com/2024/volatility-and-institutional-trading/), which shows that funds adjusted their exposure to equities by an average of 12% in response to volatility spikes last quarter. This shift reflects a broader trend of risk‑managed positioning in the face of market uncertainty.

The Role of Macro Factors

Chronert also discusses macroeconomic factors that could influence investor sentiment. The Federal Reserve’s policy stance—particularly the possibility of additional rate hikes—remains a looming threat. A recent speech by Fed Chair Jerome Powell (link: https://www.federalreserve.gov/monetarypolicy/speeches.htm) emphasized the need for “flexible” monetary policy, which could translate into tighter conditions for equity investors.

Furthermore, the U.S. inflation data for July, which revealed a year‑over‑year rate of 3.6% (down from 3.9% in June), offers a mixed signal. While a lower inflation reading could reduce the pressure for further rate hikes, the persistence of supply‑chain disruptions and labor‑market tightening keeps the narrative of an overheating economy alive. Chronert warns that a rebound in inflation could quickly erode the gains investors have already made.

What This Means for Retail and Institutional Investors

According to Chronert, the takeaway is that the market’s enthusiasm is not yet fully translating into widespread investor conviction. Retail investors may be tempted to jump on the rally, but the combination of high valuations, persistent volatility, and an uncertain macro backdrop means that a cautious approach is warranted. Institutional players, meanwhile, seem to be adopting a “wait‑and‑see” strategy, tightening positions in tech and expanding exposure to defensive sectors such as utilities and consumer staples.

The author suggests that a potential catalyst for a stronger bull run would be a sustained earnings beat from a broad range of companies, coupled with a clear pivot in the Fed’s policy tone toward a more accommodative stance. Until such conditions materialize, he predicts that the market will likely continue to oscillate between optimism and caution, a dynamic that could create pockets of volatility and risk‑averse sentiment in an otherwise positive trend.

Bottom Line

Citi’s Ranjan Chronert’s commentary paints a picture of a market that is, on the surface, riding a wave of euphoria but underneath is restrained by valuation anxieties, volatility, and macro‑economic headwinds. Investors who are watching these indicators closely should remain mindful that enthusiasm today may not necessarily translate into a sustained bull market tomorrow. Instead, the next few months are likely to see a cautious, risk‑managed approach that balances the allure of gains with the prudence demanded by the prevailing economic uncertainties.