Citi Upgrades US Equities to Overweight, Sees 12% Upside in S&P 500

Citigroup Strategists Turn More Constructive on US Stocks Amid Elevated War Uncertainty

Citigroup Inc. strategists have joined their Wall Street peers in turning more constructive on US stocks, citing a preference for higher-quality and defensive companies in the face of elevated war uncertainty. The strategists, including Beata Manthey, have upgraded US equities to overweight from neutral on a "quality/defensive tilt" in their global allocation.

In a report to investors, the strategists also downgraded emerging markets stocks to neutral from overweight, citing vulnerability to energy shocks and a stronger dollar. Citigroup's move follows similar positive calls at BlackRock Inc. and Morgan Stanley on the US market for its relative resilience. The S&P 500 Index on Monday erased its war-related losses, helped by a temporary US-Iran ceasefire and optimism at the start of the earnings season.

The Citi strategists called their US upgrade "tactical" given the limited visibility. They expect the S&P 500 to reach 7,700 by year-end, implying a 12% gain from Monday's close. The strategists also made key sectoral changes, upgrading global materials to overweight and downgrading communication services to underweight.

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A notable development highlighted by the strategists is the technology sector's growing heft over global earnings growth, which complicates the equity outlook along with the war. While an eventual peace deal between the US and Iran should lift investor sentiment, "a return to 'goldilocks' macro and pro-cyclical trading dynamics may prove difficult," the strategists wrote.