Citigroup Advises Investors to Diversify Away from U.S. Stocks

Citigroup strategists are urging investors to look beyond Wall Street for stock returns after a strong first half. They have downgraded U.S. equities to neutral from overweight, expressing caution about the sustainability of megacap growth and potential recession risks in the United States.

The strategists anticipate a pullback in U.S. equities in the second half of the year and recommend a more aggressive approach in 2024. They believe that the current valuation of the S&P 500, driven by mega-cap tech/growth stocks, is above fair value and not fully supported by earnings follow-through or lower 10-year yields.

In terms of alternative investment options, Citigroup has increased its focus on European stocks, upgrading them to overweight. They view Europe as an attractive opportunity due to its record discount to U.S. stocks, the potential for a weaker dollar, and potential stimulus from China. Citi is also bullish on emerging markets equities, citing a more interesting risk/reward profile with exposure to growth and materials. However, they caution against rushing into the Japanese stock market, as a sudden influx of foreign capital could reverse its stellar performance this year.

In terms of alternative investment options, Citigroup has increased its focus on European stocks, upgrading them to overweight. They view Europe as an attractive opportunity due to its record discount to U.S. stocks, the potential for a weaker dollar, and potential stimulus from China. Citi is also bullish on emerging markets equities, citing a more interesting risk/reward profile with exposure to growth and materials. However, they caution against rushing into the Japanese stock market, as a sudden influx of foreign capital could reverse its stellar performance this year.