A contradictory sentiment of "saying one thing but doing another" is dominating the US stock market. According to trading desk reports, Citigroup's latest analysis reveals that while investors express concerns about elevated valuations and potential AI bubbles, their actual portfolios reflect an extremely bullish and "euphoric" stance, creating a wave of "reluctant bulls."

Recently, US stocks have experienced a pullback, with the S&P 500 retreating 3% from its late-October peak, while the tech-heavy Nasdaq 100 has dropped 4.5%.

Currently, there is a significant disconnect between investors' rhetoric and actions—they voice worries about valuations, credit, and labor markets, yet remain steadfast in their allocations to US large-cap stocks. Citigroup strategist Scott T. Chronert noted in the report:

"Recent client discussions indicate a large presence of reluctant bulls in the market."

This divided sentiment introduces uncertainty. Strong corporate earnings provide support for equities, but extreme valuations and overly optimistic positioning leave the market highly vulnerable. Any cracks in the earnings growth narrative could disrupt this delicate balance.

**The Wide Gap Between Sentiment and Positioning** Citigroup's report highlights the stark divergence between investor sentiment and actual market exposure. Despite verbalized "persistent concerns" about "valuations, bubbles, credit, and labor," the firm's positioning metrics indicate "euphoria."

The Citigroup Levkovich Panic/Euphoria Index, which measures market sentiment, currently stands at 0.72—well above the 0.38 threshold for "euphoria." Historical backtesting shows that when the index enters euphoric territory, the S&P 500's median 12-month return tends to be negative (-9.4%).

Elevated valuations are another key concern. Citigroup's PULSE model rates the "price" indicator as "negative," with multiple valuation metrics nearing historical extremes. The report shows that US stock valuations are at historically high levels—the S&P 500's trailing P/E ratio of 25.3x sits in the 95th percentile over the past 40 years, meaning it is higher than 95% of historical readings.

Additionally, price-to-book (P/B), price-to-sales (P/S), and enterprise value-to-EBITDA (EV/EBITDA) ratios are at the 99th, 100th, and 100th percentiles, respectively. Historically, such high P/E levels have been followed by median 12-month returns of -11.2%.

**Earnings Growth as the Market's Key Pillar** Despite the warnings, the market is not without support. Robust corporate earnings serve as a critical foundation. Citigroup rates the "earnings" indicator in its PULSE model as "positive."

Data shows a solid Q3 2025 earnings season, with companies beating expectations outnumbering those missing by a 6-to-1 ratio. Analysts continue to raise forward earnings estimates, with consensus projecting S&P 500 EPS to reach $271 in 2025 and climb further to $307 in 2026.

Citigroup's own forecasts ($272 and $308) align closely, reflecting confidence in corporate fundamentals. However, the report emphasizes that annualized EPS growth of around 10% is needed to justify current valuations.

**No AI Bubble Yet—Opportunities on Dips** Regarding the much-debated AI sector, Citigroup sees "no bubble yet" and suggests investors adopt a "growth at a reasonable price" (GARP) strategy. Among its screened AI investment universe, about 50% of companies remain attractive.

Overall, Citigroup recommends treating further market pullbacks as "opportunistic" buying moments, as structural trends appear intact. Sector-wise, the report favors overweighting financials, technology, and utilities while underweighting consumer staples and industrials.