Recent market strife driven by turmoil in the Middle East may be just the beginning of payback time for U.S. stocks after a prolonged period of smooth sailing to fresh records.

Vulnerability to a pullback has spread as traders staked out increasingly bullish positions, with estimated equity exposure in strategies like volatility control and momentum funds now at the highest levels since mid-2018, according to Wells Fargo equity derivatives strategist Pravit Chintawongvanich.

“A flare-up in volatility could lead to substantial de-risking from these strategies, as was seen in February and October 2018,” he warns, while acknowledging that the recent history of geopolitical flare-ups suggests most are unlikely to serve as catalysts for material risk-off episodes.

His warning comes amid increasingly bellicose threats from President Donald Trump and Iran’s leaders following the killing of General Qassem Soleiman. Oil surged above $70 a barrel Monday and equities around the world extended losses. Havens climbed, with gold rising to the highest in more than six years.

Chintawongvanich recommends hedging against the possibility of a 5% to 10% pullback in the SPDR S&P 500 ETF Trust, the exchange-traded fund that tracks the benchmark U.S. stock index, by buying a March $310 put while selling the $290 strike in order to cheapen the position. This trade also captures the Super Tuesday primary results in the U.S., which have long carried event premium.

A return to volatility would mark a massive turnaround for equities. In the final two months of 2019, the S&P 500 posted 20 all-time highs while 20-day realized volatility sank more than one standard deviation below its one-year average.

That said, riskier assets remained relatively well-behaved during their retreat Friday, with U.S. stocks closing well off their lows of the day. QVR Advisors Chief Investment Officer Benn Eifert attributed some of the intraday rebound to the rebalancing among dynamic hedgers that have taken the other side of institutional option-selling. This activity will tend to support a market that’s gapped lower so long as it remains close to its recent trend.

Other analysts see more potential risk for stocks. Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, has also cited elevated exposure as a worry. She points to data showing positioning in U.S. equity futures has surpassed the levels that marked prior peaks throughout 2018 and 2019 as well as 2007 ahead of the global financial crisis.

“While it’s tempting to say the market is breaking out of the rut it’s been trapped in for the past few years, when we dig down into the details we come away even more convinced that a positioning peak is in the process of being made,” she wrote.

For Gina Martin Adams, Bloomberg Intelligence chief equity strategist, the S&P 500’s torrid 12% advance over the past 60 sessions suggests the time is ripe for a cool-down in equities, regardless of whether a catalyst warrants one or not.

“The S&P 500 experienced such an extreme just twice in the past five years -- March 2019 and April 2016,” she notes, with both instances “affiliated with a short-term period of consolidation or minor stock correction.”

This article was provided by Bloomberg News.