Citi Analysts Cut Their Recommendation For U.S. Stocks To Neutral From Overweight On Monday

Citi analysts cut their recommendation for U.S. stocks to "neutral" from "overweight" on Monday after recession fears pummelled the market, arguing that the U.S. economy may no longer outpace the rest of the world in the coming months.

At the same time, they upgraded their view on China to "overweight" from "neutral".

The report was issued after the close of trade on Monday when the Nasdaq lost 4%, its steepest one-day tumble since 2022. The benchmark SP 500 fell 2.7%, its biggest daily drop of the year.

Dirk Willer, Citi's global head of macro, asset allocation and emerging market strategy, said in a note to clients that two recent price signals contributed to the shift in view: the SP 500 breaking below its 200-day moving average and the soft performance of "generals" or market-leading stocks.

"In the big picture, US equity outperformance may well return when the AI narrative takes over again, but in the coming months, we expect US growth momentum to undershoot the (rest of the world)," the note said.

On China, Citi's economists have revised their forecast for Chinese GDP growth to 4.7% this year from 4.5%, partly on a boost from investment in artificial intelligence.

Willer also noted China's tech sector is cheap relative to global peers, even after recent gains.

"China screens well," said Willer. "While tariffs remain a risk ... there is also the possibility of reaching resolution in trade discussions with China, which would be very positive."

In credit, Citi also downgraded U.S. high-yield debt to "neutral" from "overweight."

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