A major Wall Street investment firm has expressed renewed confidence in US stock markets, shifting its stance as technology companies show robust performance and corporate earnings outlook improves.
Citigroup moved its rating on US equities from “Neutral” to “Overweight” in a Monday evening research note. This decision follows the S&P 500’s impressive recovery of nearly 9% from its seven-month bottom reached in late March, as investors grew more optimistic about potential de-escalation in Middle East tensions that could prevent oil-price-driven inflation spikes.
The investment bank joins several other major financial institutions, including BlackRock Investment Institute, which also elevated its US stock rating on Monday, showing preference for American equities compared to international alternatives.
“The (U.S.) market has derated and now trades at a premium to developed markets, excluding the U.S.; that’s close to historical averages,” Citi strategists said in a note on Monday, just as global earnings growth is narrowing and tilting more heavily toward technology.
According to Citigroup’s analysis, while earnings per share across all global sectors are projected to increase by 2026, the technology sector alone is anticipated to contribute approximately 50% of that growth.
However, the firm simultaneously reduced its outlook on emerging market stocks to “Neutral,” citing concerns that many developing economies face significant risks from energy supply disruptions, potentially worsened by the strengthening US dollar.
Emerging market investments have faced renewed challenges as conflicts involving Iran have pushed oil prices upward, raising worries about inflation, worsening trade balances, and investment capital leaving energy-dependent nations. The MSCI Emerging Markets index has declined 2.8% since the current conflict began.
Despite these concerns, Citigroup raised its year-end projection for the MSCI EM index to 1,770, up from its previous target of 1,540.
The financial services company also elevated the global materials sector to “Overweight,” pointing to enhanced earnings momentum and stronger growth potential that have increased its attractiveness while valuations remain low. Conversely, it downgraded the global communication services sector to “Underweight.”
