Citi Turns Bullish on U.S. Stocks While Shifting to Defensive Strategy

Citigroup has upgraded U.S. equities to overweight from neutral, signaling renewed confidence in American markets despite rising geopolitical tensions. The bank paired this move with an existing overweight stance on the U.K., while downgrading emerging markets to neutral.

According to strategist Beata Manthey, the shift is largely tactical, reflecting limited visibility following the fragile ceasefire between the U.S. and Iran and the subsequent naval blockade of the Strait of Hormuz.

Citi highlighted that the current geopolitical backdrop is likely to follow an “escalate to de-escalate” pattern, with oil prices expected to remain elevated in the short term before easing later in the year. In response, the bank is adopting a more defensive, quality-focused allocation strategy.

Despite the cautious tone, Citi’s outlook still points to potential upside in global equities by year-end—assuming tensions eventually subside. However, the bank warned that markets may be overly optimistic on earnings growth. While consensus forecasts call for 20% global EPS growth in 2026, Citi’s internal models suggest a more modest 16%, with gains likely concentrated in a narrower group of sectors and large-cap stocks.

On sector positioning, Citi upgraded Materials to overweight while downgrading Communication Services to underweight, reflecting a shift toward more resilient segments of the market. The bank added that in a scenario of rapid conflict resolution, it would likely favor increased exposure to both U.S. and emerging markets