Citigroup has reiterated its call for investors to increase exposure to U.S. equities, particularly targeting any market weakness ahead of the November midterm elections. In a note published Friday, the bank maintained its overweight rating on equities, citing sustained positive momentum despite recent hesitancy.
Citi argued that an equity market top remains unlikely, pointing to three key factors: investor sentiment that is not overextended, improved liquidity conditions following reduced expectations for Federal Reserve rate hikes, and the absence of major warning indicators. The bank also noted that both U.S. and global earnings revisions have trended higher, reinforcing its constructive view.
The bank highlighted that liquidity concerns have eased after the U.S. Treasury took steps to stabilize the long-end of the yield curve. Citi emphasized that reduced volatility in fixed income—rather than absolute yield levels—has a more direct impact on equity markets. Earlier this month, the bank reduced its overweight position in emerging Asia, citing uncertainty surrounding the artificial intelligence infrastructure theme, while continuing to favor U.S. equities on a relative basis.
Analysts also pointed to the SOX semiconductor index, suggesting that even if the recent rally is merely a bear market rebound, sector rotation would limit downside risk. Citi attributed recent market caution to "AI indigestion" rather than interest rate concerns, signaling that the pullback, if it occurs, could present a buying opportunity.
The bank concluded that while pullbacks before midterm elections are typical, historical trends show strong year-end performance, reinforcing its recommendation to add risk on any dip.
