Citi analysts have shifted their stance on U.S. equities from “overweight” to “neutral” following the market’s tumble amid increasing recession fears, while improving the rating of Chinese equities from “neutral” to “Overweight”.
According to the research paper from Citi, analysts suggested that the U.S. economy may not maintain its previous performance advantage over global counterparts in the upcoming months.
Last night, investor anxiety intensified following President Donald Trump’s remarks in a Fox News interview where he referred to a “period of transition” but refrained from predicting whether his tariffs might lead the U.S. into a recession.
The S&P 500 had a significant 2.7% drop on Monday, marking its steepest one-day decline this year, while the Nasdaq tumbled 4.0%, the largest single-day drop since September 2022.
The S&P 500 is now down 8.7% from its record high on February 19, and the Nasdaq Composite is down nearly 14% from its recent peak, with a 10% drop typically signaling a market correction on Wall Street.
Dirk Willer, the global head of macro, asset allocation, and emerging market strategy at Citi, informed clients in a note that two significant market indicators influenced the revised assessment: the S&P 500’s dip below its 200-day moving average and the underwhelming performance of leading stocks known as “generals.”
In their broader analysis, Citi anticipates that U.S. equities might recover their outperformance if the AI sector gains traction again, but until then, U.S. economic growth is expected to lag behind other international markets.
Conversely, Citi lifted its outlook for China from “neutral” to “overweight.” For China, Citi economists have adjusted their GDP growth forecast to 4.7% for this year, up from 4.5%, partially driven by increased investment in artificial intelligence. Willer also pointed out that China’s technology sector is attractively valued compared to its global peers, even taking into account recent gains.
Willer wrote that China presents a compelling opportunity, noting that while tariffs pose a risk, the chance of resolving trade disputes with China could offer significant positive outcomes.
In the credit market, Citi also lowered its rating on U.S. high-yield debt from “overweight” to “neutral.”
