Retail investors are dialing back their risky bets after the longest bullish streak in recent years, J.P. Morgan analysts wrote in a note, marking a shift in sentiment that could sap momentum in high-flying U.S. stocks.

The brokerage's readout from Friday showed a drop in bullish options bets, with call volumes slipping compared to puts, after roughly 140 days of retail bullishness, the longest stretch in its four years of tracking such data.

Calls typically signal expectations for prices to rise, while puts reflect a bearish view.

The retreat underscores that concerns over stretched valuations, a prolonged government shutdown and uncertainty over interest-rate cuts have eroded sentiment among retail investors.

Retail risk appetite often serves as a barometer for broader confidence, especially in momentum-driven sectors. Once dismissed as a fad, retail traders have helped cushion selloffs in recent years, treating market dips as buying opportunities.

A note from Vanda Research last month said retail investors had consistently treated market pullbacks as opportunities to add exposure. That safety net, however, may now be slipping away.

TMT SHARES FACE THE BRUNT

J.P. Morgan's retail sentiment gauge has also turned lower, with the pullback most pronounced in technology, media and telecom shares.

The brokerage said hedge funds with short positions could benefit, but equity long/short strategies could suffer.

Separately, a note on Sunday from Goldman Sachs said share buying by retail investors remained strong across the tech-heavy Nasdaq 100 and the benchmark S&P 500.

Their next moves could prove crucial in testing the market's resilience through the end of the year, especially as questions swirl over lofty valuations.

Wall Street's main indexes lost ground last week, snapping a three-week winning streak.