Home Stock Market Citi Equity Strategists Adjust Stock Recommendations, Favoring Europe over US and UK

Citi Equity Strategists Adjust Stock Recommendations, Favoring Europe over US and UK

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In a notable shift in market sentiment, Citi equity strategists have recently made significant adjustments to their stock recommendations, favoring European equities over their US and UK counterparts. The strategists have downgraded US and UK stocks to a neutral rating, while simultaneously upgrading Europe stocks to overweight.

The decision to upgrade Europe stocks is primarily based on their attractive valuation. These stocks are currently trading at a record discount compared to their US counterparts, creating an opportunity for investors seeking potential upside. Furthermore, Citi emphasizes that Europe stocks are also pricing in a more reasonable path for earnings per share (EPS) growth, making them an appealing choice for investors.

Conversely, concerns about a potential pullback in megacap growth stocks and elevated risks of a US recession have prompted the downgrades of US and UK stocks. Despite the strategists’ previous upgrade of US stocks just last quarter, the strong year-to-date rally has led them to take a more cautious stance. They believe that the euphoria surrounding megacap growth stocks may be entering a “digestive phase,” suggesting a potential correction in this segment. Additionally, the strategists highlight the persistent risks of a US recession, which could have far-reaching implications for the overall performance of US stocks.

“Our US strategists think Growth may be set for a pullback as AI euphoria enters a digestive phase. Recession risks remain elevated,” the strategists noted in a client note. They also mentioned that volatility tends to rise after a sharp fall in market breadth. Moreover, they anticipate that the global inflows boosting Japanese equities should soon reach their peak. Despite these short-term concerns, Citi maintains a more positive outlook for the mid-2024 period, anticipating a resolution to the recession and a pivot from global central banks.

Zooming out to the global perspective, Citi’s forecasts indicate a modest EPS slowdown of 5% for 2023, followed by a “modest” 5% expansion in 2024. The projections suggest a deceleration in earnings growth rather than a full-blown EPS recession. According to the strategists, the risks to this outlook are more balanced than before. While the possibility of “soft landing” scenarios exists, tighter credit conditions and the impact of central banks’ liquidity measures are significant headwinds that should be taken into consideration. Citi’s market targets now indicate a near-term downside, but they maintain a more constructive medium-term view.

When it comes to sector recommendations, the Citi strategists advise constructing a portfolio that focuses on a mix of quality stocks and selective cyclicals. Notably, they have downgraded the information technology (IT) sector to a neutral rating, primarily due to the potential pullback in megacap growth stocks. Nevertheless, the strategists urge investors to remain alert and ready to seize buying opportunities should a dip occur.

The adjustments made by Citi’s equity strategists reflect their preference for Europe stocks while expressing caution towards US and UK equities. The attractive valuation and more reasonable earnings growth outlook of Europe stocks make them an appealing investment option. Conversely, concerns about a potential pullback in megacap growth and the risks of a US recession have led to a more neutral stance towards US and UK stocks. Citi’s global outlook anticipates a modest EPS slowdown but maintains a positive medium-term perspective.

As the financial landscape continues to evolve, investors should carefully analyze these recommendations and consider their own investment goals and risk tolerance. It is crucial to conduct thorough research and consult with financial professionals before making any investment decisions.

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Evie

Evie is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs.

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