Citi strategists upgraded U.S. stocks to overweight as they expect current financial and market conditions to “maintain a bullish risk outlook.”
More specifically, the current macroeconomic environment is characterized by soft financial conditions and low cross-asset volatility, which support investors’ risk appetite, Citi noted. While economic growth has disappointed, it is not a cause for concern and inflation appears to have remained above target.
Moreover, the Wall Street giant stressed that stocks continue to trade towards a soft landing scenario.
“In our view, given how the Fed’s future rate will move, as well as important upcoming economic growth, inflation and labor market indicators, any large deviation could leave the market exposed,” the strategists wrote.
Thus, the strategists made several changes in position. They have slightly reduced the overweight of their shares, now favoring the US market. In the rates sector, they remain overweight in the core EU and have moved to long US fixed income.
Citi said economists expect inflation to remain high and expect a U.S. recession this year. The assets that are most at risk of catching up to these conditions are fixed income assets (positive impact) and credit, as well as base and precious metals.
“Given the uncertainty, scenario analysis is the best way to deal with this range of outcomes,” Citi wrote. “We’re launching a few, and the results are somewhat in line with expectations—bonds doing well in a recession, stocks doing well in a soft landing.”
Among other position changes, Citi has widened its credit deficit by investing more in base metals and, to a lesser extent, energy, while its cash position remains unchanged.