Citi has downgraded U.S. equities from Overweight to Neutral, citing uncertainty in the macroeconomic outlook, elevated valuations, and mounting earnings downgrade pressures. While recent tariff-related risks have been partially priced in following President Trump’s 90-day pause on trade restrictions, Citi warns that significant economic drag still looms.
Key Points
Elevated Valuations and Earnings Pressure:
U.S. equities continue to trade near the 80th percentile of historical valuation multiples.
Citi’s proprietary Earnings Revision Index recently hit “recessionary” levels of -40%, signaling a substantial risk of further downgrades.
The bank’s top-down forecast predicts global earnings growth at only 4%, well below the 10% expected by consensus from bottom-up analysis.
Tariff Impact:
Existing tariffs could drag the MSCI All-Country World Equity Index EPS growth by up to six percentage points this year.
Citi’s analysis warns that these factors may undermine the U.S. market’s performance, with “cracks in the U.S. exceptionalism story” potentially dominating the equity environment over the medium term.
Regional Reallocation:
Japan: Upgraded to Overweight due to attractive valuations—trading at the 15th percentile over the past 25 years—and a reduced risk of further U.S. trade conflict.
United Kingdom: Also upgraded to Overweight, as investors benefit from cheap valuations and a defensive market nature amid persistent volatility.
Continental Europe: Maintains an Overweight stance driven by fiscal stimulus tailwinds and expectations of further rate cuts by the ECB.
Market Outlook
Citi’s “New World Order” note highlights that U.S. earnings per share could be significantly impacted by ongoing tariff measures. Although some upside may result from eased trade tensions, the overall U.S. equity market remains vulnerable to further economic headwinds and revisions in earnings expectations.
For those looking to gauge the broader sentiment and relative strength across global markets, a deeper dive into equities ratings and historical trends can be done via the? Bulk Ratings API from Financial Modeling Prep.
