Strategists at Citigroup have joined a growing number of Wall Street peers in expressing increased optimism toward U.S. equities, noting that heightened uncertainty stemming from Middle East conflicts is prompting investors to favor high-quality and defensive stocks.
In a report, strategists including Beata Manthey stated that they have upgraded the U.S. equity rating from neutral to overweight, citing a strengthened preference for "quality/defensive" allocations. At the same time, they downgraded emerging market equities from overweight to neutral, pointing to their vulnerability to energy shocks and a stronger U.S. dollar.
Citigroup's outlook aligns with that of other Wall Street institutions such as BlackRock and Morgan Stanley, which have also recently offered positive assessments of the relative resilience of the U.S. market. The S&P 500 index has already erased its post-conflict losses as of Monday, supported by a temporary ceasefire between the U.S. and Iran and optimistic sentiment at the start of the earnings season.
Given limited market visibility, Citigroup strategists described the upgrade as "tactical" and projected that the S&P 500 would reach 7700 by the end of the year, implying a 12% gain from Monday's closing level.
In terms of major sectors, the strategists upgraded global materials to overweight and downgraded communication services to underweight. They also emphasized that beyond geopolitical risks, the growing share of the technology sector in global earnings growth adds complexity to the equity outlook.
The strategists noted that while a final peace agreement between the U.S. and Iran would likely boost investor sentiment, a return to a "Goldilocks" macroeconomic narrative and pro-cyclical trading dynamics may prove challenging.
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