Investing.com — Citigroup strategists are standing by their overweight on equities, arguing that the historical pattern of bull market endings, driven by aggressive rate-hiking cycles, is not present in today’s environment.
Looking back at every major equity market top in recent decades, the bank highlights that the ’s peak in 2000 came after 175 basis points of Fed hikes, the 2007 top followed 425 basis points of tightening, a smaller 2018 pullback was the result of 225 basis points in hikes, and the 2022 selloff was driven by a 525 basis point hiking cycle.
The COVID crash and the brief “Liberation Day” selloff were the only significant exceptions, where rates played no role.
“Given that the Fed has not even hiked once and the Fed’s balance sheet is still rising, we think the bull market is likely still intact,” the strategists wrote.
Citi maintains a positive one-notch overweight on equities, centered on the U.S. and emerging market (EM) Asia. Positioning risks are most elevated in AI-related trades and their EM Asia positions, the strategists noted, but pointed out that South Korean positioning has come down meaningfully since before the Iran war, even as the Nasdaq and S&P 500 have continued to climb.
Citi recently raised its 2026 S&P 500 target to 8,100 from 7,700, citing strong earnings momentum.
Elsewhere, Citi added a tactical long on Europe’s index following the announcement of the U.S.-Iran memorandum of understanding, but remains neutral on European equities in its broader allocation.
The strategists see the recent outperformance of European stocks — partly driven by the region’s status as a net oil importer benefiting from lower energy prices — as unlikely to last.
“We still think it is premature to call for the end of the AI trade,” the team said, adding that AI remains the main structural driver for global equity markets, a theme largely absent in Europe.
With the Iran conflict largely priced out and the ECB among the few G10 central banks to have begun hiking, Citi said it is not yet time to add a more structural European equities position.
Sector-wise, Citi flagged Industrials as its preferred addition in the U.S. alongside Tech heading into earnings season. The sector ranks at the 87th percentile on earnings revisions over the past year, with less crowding than Financials, Tech, and Communications Services.
Tech earnings revisions, while not at the top on a rolling percentile basis, have remained strong throughout the year.