On Monday, Citigroup made several strategic adjustments to its recommendations, downgrading U.S. stocks while upgrading their European counterparts. The brokerage revised its rating on U.S. stocks from “overweight” to “neutral” after a robust rally in the first half of the year. Citigroup cautioned that growth stocks could experience a pullback as the initial “euphoria” surrounding artificial intelligence transitions into a more “digestive” phase.
In contrast, Citigroup identified potential opportunities in European stocks that have been heavily discounted. The bank increased its allocation to select cyclicals, particularly the materials sector, which is anticipated to benefit from a potential upswing in China’s economic growth.
Year-to-date, the S&P 500 has posted a gain of 14.6%, while the tech-heavy Nasdaq has surged by approximately 31%, largely driven by a few technology stocks that capitalized on the potential of artificial intelligence.
As of 8:00 a.m. ET, futures tracking the S&P 500 showed no significant movement.
Citigroup also downgraded the global IT sector to a “neutral” rating.
The brokerage’s strategists further downgraded UK stocks due to their limited exposure to growth stocks and the strength of the pound. As a replacement, emerging market (EM) stocks received an “overweight” rating in Citigroup’s asset allocation. According to the strategists, EM stocks present a more compelling risk/reward profile, offering exposure to both growth and materials. Additionally, they could benefit from potential weakness in the U.S. dollar, potential interest rate cuts, and an improvement in sentiment towards China.
