With the conflict in the Middle East entering its sixth day on Thursday, Citi suggested that volatility for stock markets is set to continue as it assessed "how much preexisting market froth" had been unwound amid selling at the start of the week.
"Three observations stand out," said Beata Manthey, the bank's European equity strategy head.
First, she says the current conflict "began at a point of exceptionally strong market sentiment and stretched valuations. Indeed, we find that PE multiples were effectively as high as ever heading into a meaningful geopolitical shock."
Second, Manthey notes that the sharpest moves this week have been in indices that had previously delivered the strongest YTD returns. Korea's Kospi stands out here.
Finally, she notes that Citi latest equity positioning model update "shows still-elevated levels of both net and gross investor positioning outside of the Nasdaq".
Altogether, it suggests, the Citi strategist says, "that equities could remain volatile and sensitive to incremental news flow until a plausible/concrete conflict resolution is in place".