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Citi strategists led by Dirk Willer downgraded U.S equities to neutral, citing recession risks.
The move comes after several banks and investment management firms recently warned of an economic slowdown as the Federal Reserve tightens its monetary policy to fight inflation.
“While a US recession is not the base case for Citi economics, uncertainty is very high, and the Fed seeming to guide for recession is not reassuring. While typically equities only peak shortly before the start of a recession, this time it may happen earlier than we expected, potentially because we have elements of a deflating bubble,” Willer wrote in a note.
Willer and his colleagues recommend going long healthcare and consumer staples, against technology and financials.
Citi also lifted its rating on U.S. government bonds from underweight to neutral and reiterated its optimistic stance on Chinese stocks and sovereign bonds, saying it wants to have exposure to the country’s assets “with China being the only major market where authorities are at least marginally supportive.”
The flagship S&P 500 index is down 15% since the start of 2022, though the performance tracking index ticked has now seen its first weekly gain since early April.
