Citigroup strategists have upgraded their recommendation on U.S. equities from “underweight” to “neutral”, and the tech sector to an overweight, due to the recent advances in artificial intelligence (AI). Artificial intelligence stocks have “clearly been extreme” with a “kicker” prompting Citigroup lead strategist Dirk Willer and his team to make the upgrade. The expectation is that AI will continue its strong performance, particularly seen in U.S. megacap technology stocks, making them a dominant factor in the U.S. stock market. Simultaneously, as the Federal Reserve appears to be nearing the end of its interest rate-hiking cycle, investors are increasingly showing risk appetite, likely pushing U.S. stocks outperformance.
This week, Nvidia’s stock soared to all-time highs following the chipmaker’s strong second quarter revenue guidance which was driven largely by its AI chips. The company’s market cap grew by nearly $184 billion, putting it in striking distance from becoming the seventh U.S. company to top the $1 trillion mark.
On the other hand, Citi’s strategists had called for a U.S. underperformance in January, expecting that Fed hawkishness on monetary policy will peak during the first half of 2023. This prompted them to move the U.S. to an “underweight” rating. However, the strategists now anticipate an outperformance at the end of the Federal Reserve’s monetary tightening cycle.
The market recovery in the U.S. this year has been driven by AI, expectations of the Fed pausing its rate hikes, and a possible debt-ceiling deal in Congress. This prompted Citi’s strategists to move U.S. back to neutral, while going overweight on the tech sector.
Citigroup is a global financial services company based in New York City. It provides products and services in the areas of investments, home mortgages, corporate banking, wealth management, and private banking. It is one of the world’s most valuable banks with more than 200 million customers and total assets worth nearly $2 trillion. Dirk Willer is the global head of emerging market strategy at Citigroup. He and his team are responsible for the strategic implementation and market analysis of investments across a range of industry sectors, including technology, telecoms, media, and healthcare.
