Citigroup strategists are shifting toward a more defensive stance, downgrading US equities and the global technology sector while upgrading European stocks.
Crowded positioning, slowing earnings growth, and uncertain prospects for AI investment are making the market vulnerable to further short-term volatility.
The team led by Beata Manthey made tactical adjustments, cutting US equities, global tech stocks, and European tech stocks from overweight to neutral. The rationale is crowded positioning, elevated valuations, and slowing earnings per share growth, which leave these assets more exposed to downside risk.
European equities excluding the UK were upgraded from neutral to overweight. This market has lower dependence on the technology sector and a higher weighting in cyclical and defensive sectors.
Citigroup also raised its ratings on the materials and healthcare sectors, maintaining an overall preference for defensive and high-quality names.
The research note pointed out that cyclical sectors have already underperformed defensive sectors in this round of market rotation.
This adjustment is a tactical reallocation rather than a bearish call on stocks.
Citigroup still believes that economic data and earnings are resilient enough to support the market.
However, crowded positions have only been partially cleared, and short-term trading may remain choppy until a more suitable buying opportunity emerges.
Comments