Barclays warns "US retail investor frenzy has peaked"! Predicts the S&P 500 will pull back 7%, leveraged ETFs are an unbroken bombshell

A long-time bull on the stock market, Barclays Global Equity Tactical Strategy Head Alex Altmann recently turned short-term cautious. He warns that the market is currently flooded with retail enthusiasm comparable to 2021, coupled with structural risks from single-stock leveraged ETFs and rising real yields, which could lead the S&P 500 to face a correction of up to 7%.
(Background recap: Tom Lee claims U.S. stocks will continue to surge after the mid-term elections! Rallying to 7,700 before starting a correction, with 2027 being the "biggest gain of a lifetime")
(Additional context: JPMorgan calls for a bullish U.S. stock market: AI ignites a "super cycle" of profits, with the S&P 500 expected to reach 9,000 points next year)

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• Retail enthusiasm reaches 2021 levels, leveraged ETFs pose hidden risks
• Overcrowded momentum trading, S&P 500 may correct 7%
• High inflation and high dividend yields threaten risk assets

The U.S. stock market has repeatedly hit new highs driven by the AI wave, but underlying structural risks are causing Wall Street’s steadfast bulls to change their stance. Against this backdrop, Barclays Global Equity Tactical Strategy Head Alex Altmann stated in a podcast that he has shifted to "short-term tactical caution" on U.S. stocks.

It’s worth noting that Altmann is not typically an easily swayed analyst; whether during the market bearish period last September or when the Middle East conflict erupted in March this year, he maintained a bullish outlook, which was validated by the market. However, facing sharply rising financing costs and real yields (inflation-adjusted yields), he believes that valuation pressures are weighing heavily on stocks.

Retail enthusiasm reaches 2021 levels, leveraged ETFs pose hidden risks

Altmann pointed out that current retail enthusiasm has reached or even exceeded the peaks of 2021. Unlike the environment back then, which was characterized by deeply negative real yields, the current positive yield environment significantly increases market risk. Moreover, institutional voices are almost uniformly optimistic, casting a shadow over future returns of the S&P 500.

What worries him more is the proliferation of "leverage ETFs," especially single-stock leveraged products. These require daily rebalancing, which can trigger large trading flows into specific stocks, creating a chain reaction of "tail wagging the dog." This self-fulfilling prophecy can push stocks higher during rallies and accelerate declines during downturns.

Overcrowded momentum trading, S&P 500 may correct 7%

Further analysis indicates that both retail and institutional investors are currently chasing stocks that have already surged, leading to overcrowded momentum trades, especially in AI-related sectors. Investors tend to prefer "buying the dip" options rather than hedging. Altmann warns that such conditions are highly susceptible to sharp corrections triggered by minor market adjustments or shifts in narrative.

For the near-term outlook, Altmann estimates the total correction of the S&P 500 to be around 6% to 7%. He notes that, based on current declines, this correction "may already be halfway done." He believes the market needs further declines to digest overheated sentiment, or for real yields to fall back, and for the Fed to verbally guide yields lower, which could turn him back to a bullish stance.

High inflation and high dividend yields threaten risk assets

The current global macro environment remains challenging. U.S. stock futures have weakened amid tech sector declines, the 10-year Treasury yield continues to rise, and precious metals like gold and silver have also tumbled. The market is awaiting the upcoming U.S. May Consumer Price Index (CPI) release, with expectations that inflation could surpass 4%, marking the first time in 2023. Under the pressure of high interest rates and high inflation, global risk assets, including cryptocurrencies, are likely to face more severe volatility in the short term.