While Citi doesn't see the artificial intelligence bubble at its largest point yet, the bank has other reasons to take a breather on its S & P 500 long trade. Dirk Willer, Citi's global head of macro strategy and asset allocation, said Nvidia's failed rally on the back of a blockbuster earnings report on Thursday is a sign that market enthusiasm hasn't returned. Willer believes there is a bubble, but he added that investors could keep riding it since they can last for a long period. "We do not see conclusive evidence that the bubble has peaked," Willer wrote to clients in a Friday note. "But more tactically, the risk reward is not as strong as we had envisioned, given that a strong quarter from NVDA has not been enough to re-ignite animal spirits." Nvidia shares rallied as much as 5% on Thursday before diving to end the session more than 3% down. The dramatic reversal pulled the broader market into the red with it, leaving investors once again concerned about the health of the AI trade. Willer said Citi stopped out of its tactical long in the S & P 500, adding the bank would take profits on its long Nasdaq 100 and S & P 500 Equal Weight Index trades. NVDA 5D mountain Nvidia, 5-day The strategist called the current market performance "rare." Willer said November and December is typically a strong period — especially after the returns in the first ten months of the year were relatively high. The S & P 500 has fallen around 4% this month, on pace to snap a six-month losing streak and poised to record its biggest monthly loss since March. Willer pointed to decreasing optimism around the AI trade and the interest rate outlook as two explanations for this atypical weakness. "As of mid-November, Santa has not been kind to equity investors," Willer said.
