As the U.S. earnings season officially began on Monday, strategists from the financial giant Citigroup have joined their Wall Street peers in adopting a bullish stance toward U.S. equities. The firm has shifted its view on the benchmark S&P 500 index from a previous stance of cautious neutrality to a more constructive and optimistic outlook. Unlike peers such as BlackRock, Goldman Sachs, and Morgan Stanley, who favor more aggressive portfolios tilted toward cyclicals, consumer discretionary, and semiconductors, Citigroup's strategists emphasized that persistently high geopolitical uncertainties continue to support investor preference for high-quality, defensively-oriented companies.
In their global asset allocation strategy, Citigroup strategists, including Beata Manthey, upgraded U.S. equities from "neutral" to "overweight," citing a "quality/defensive tilt." Concurrently, they downgraded emerging market equities from "overweight" to "neutral" in a note to clients, citing their greater vulnerability to rising energy prices and a strengthening U.S. dollar. This move by Citigroup follows similar positive outlooks on U.S. and global equity markets from Goldman Sachs, BlackRock, and Morgan Stanley, with a core rationale being the demonstrated resilience and robust profit expansion among U.S. listed companies.
On Monday, the S&P 500 erased all losses related to the Iran conflict, buoyed by optimism surrounding a temporary ceasefire between the U.S. and Iran and a positive start to the earnings season highlighted by strong results from Goldman Sachs. As shown in the accompanying chart, the index recovered from its Iran-war-induced decline. Risk assets, including cryptocurrencies and stocks, strengthened as financial markets grew hopeful that the U.S. could reach an agreement with Iran, potentially ending the latest round of geopolitical conflict. Bitcoin, often seen as a barometer for risk appetite, surged to its highest level in four weeks.
With the prospect of U.S.-Iran talks fueling a Bitcoin rally, market risk appetite began to return. Asian stock markets generally advanced on Tuesday, with Japan's Nikkei 225 rising 2.5% and South Korean stocks gaining over 3.5%, led by tech shares benefiting from the AI boom. Meanwhile, WTI and Brent crude oil prices faced downward pressure.
Citigroup strategists described their upgrade of U.S. equities as a "tactical" move, given current fund flows and limited overall market visibility. They projected the S&P 500 could reach 7,700 by year-end, implying approximately 12% upside from Monday's closing level. Since its low on March 30, the index has already rallied about 8%.
In terms of key strategic sector adjustments globally, Citigroup strategists upgraded the global materials sector to "overweight" against a backdrop of generally rising key energy and commodity prices, while downgrading the communication services sector to "underweight." They also noted that the increasing weight of the tech sector in global earnings growth, combined with intermittent geopolitical factors, complicates the equity outlook.
The strategists added that while positive expectations for a lasting peace deal between the U.S. and Iran would continue to boost investor sentiment and overall risk appetite, a return to a "Goldilocks" narrative-driven macro environment and pro-cyclical market dynamics might prove difficult.
As the U.S. earnings season commenced this week, bolstered by strong profit expansion expectations centered on AI computing infrastructure and growing conviction that lasting ceasefires involving Iran and Lebanon are imminent due to domestic pressures, major Wall Street institutions like BlackRock, Goldman Sachs, and Morgan Stanley have become marginally more optimistic about the future equity market. This underscores a view among major banks that post-ceasefire valuation repair, earnings resilience, and AI-driven earnings revisions are signs of significantly warming risk appetite.
Michael Wilson, a prominent equity strategist at Morgan Stanley, stated on Monday that against a backdrop of strong earnings and ongoing economic recovery, the stock market is in the "final stages" of a downward correction trajectory caused by geopolitical conflict, and risks from private credit and the AI disruption have already been priced in. Wilson's team highlighted that accelerating corporate profits are shielding the S&P 500 from a steeper decline and preventing a broader market correction, attributing the index's fall of less than 10% since its January peak to robust earnings and persistent economic recovery.
Goldman Sachs has shifted its market assessment from "defending against worst-case scenarios" to "trading the repair phase after tail risks subside." Although the ceasefire remains fragile and risks in the Strait of Hormuz persist, Goldman's macro traders believe Iran's continued willingness to negotiate is sufficient to significantly reduce the probability of extreme downside scenarios. Consequently, the market is transitioning from pricing panic over uncontrolled war, soaring oil prices, and abrupt policy shifts to reassessing a new phase of "contained but persistent shock."
Combining this assessment with Goldman's recent positive views on flows from "fast money" like CTAs paints a more complete bullish picture—narrowing macro tail risks are creating conditions for systematic strategy funds to resume adding positions. Latest calculations from Goldman's trading desk indicate that CTAs sold approximately $48 billion in S&P 500 futures during the sell-off triggered by the Iran conflict over the past month. However, they are poised to become net buyers of U.S. stocks over both the next week and the next month; even if the market merely trades sideways, potential buying over the next week could reach around $45 billion, representing a historically significant technical rebound. This suggests the market recovery is not merely based on "emotional relief" but could evolve into a liquidity-driven reacceleration fueled by improved trend signals, lower volatility, and passive buying.
More critically, Goldman Sachs characterizes this shock not as a "growth collapse" but closer to an inflation shock. If the oil price shock does not translate into broad-based growth downgrades, the market can still price in double-digit earnings growth rather than immediately switching to a recession framework. Signs are already emerging—Q1 earnings growth expectations for the S&P 500 have been revised up to 13.9%, with tech and semiconductors being the primary contributors to earnings revisions. Wall Street firms including BlackRock, Morgan Stanley, and JPMorgan are also marginally shifting toward a more positive, risk-on stance.
Comments