🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Narrowing vs. broadening risks roughly balanced: Citi

Published 07/23/2024, 11:00 PM
© Reuters.

Citi analysts see a delicate balance between recent market narrowing and potential future broadening.

"Markets narrowed substantially through 1H24," says Citi, but a softer inflation reading and a potential Trump presidency have shifted investor focus.

While some remain confident in a "soft landing," driven by the Federal Reserve's policy shift, Citi acknowledges counterbalancing risks. "From here, 'narrowing' vs. 'broadening' risks look roughly balanced," analysts wrote.

The bank explains that a stronger belief in a soft landing could see the recent rotation into previously lagging sectors (like small/mid-cap stocks) continue.

However, Citi highlights potential roadblocks, including a slowing US economy, persistent geopolitical tensions, and continued earnings upgrades in growth sectors.

Adding another layer of complexity, analysts state that a potential Trump re-election and its anticipated dollar strength could make it difficult for non-US equities to take the lead.

"Ultimately, we see the MSCI AC World around current levels by end-24," predicts Citi, with ongoing volatility a possibility.

Their medium-term outlook is more optimistic, targeting a 5% gain by mid-2025. This upside is based on solid earnings growth projections, with valuations expected to hold steady.

To navigate this environment, Citi suggests a global equity strategy balanced between growth/cyclicality and some defensiveness.

They are overweight the US and Japan, while upgrading the traditionally defensive UK to neutral. Emerging markets (EM) are downgraded to underweight due to their exposure to a potentially stronger US dollar.

Within sectors, the investment bank upgrades Communication Services to overweight, joining Consumer Discretionary and Financials. Industrials are downgraded to neutral, while Consumer Staples see an upgrade to neutral.

The bank concludes that key themes for investors to watch include the central bank pivot, the interplay between market narrowing and broadening, and ongoing political and geopolitical risks.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.