Why Citi Upgraded Its Rating on US Equities to ‘Overweight’



Citigroup on US equities

In the above two parts of this series, we discussed that Citigroup (C) has an optimistic view on the bull market in global equities. It also expects that the global equity market could see growth of 9% in the next one year.

Citigroup has an optimistic view on US equities and upgraded its rating on US equities to overweight from neutral. It wrote, “The U.S. growth outlook remains strong given attractive lending standards, tax cuts, and a fiscal spending stimulus that carries well into 2019. Notwithstanding protectionist concerns, the underlying dynamics support earnings, which in turn should help equities.”

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Factors driving growth in the US

The tax reform implemented by the US government is expected to increase US economic growth at a faster rate in the near term. The government’s fiscal spending bill is also strengthening investors’ confidence in the US economy. The spectacular earnings growth of the S&P 500 Index in recent quarters is adding more value to the US economy (QQQ). Citigroup forecasts 15% EPS growth for the S&P 500 Index (SPY) in 2018 and estimated a target of 2,865 for the index by mid-2019.

The recent corrections in the S&P 500 Index are providing an opportunity to investors to buy stocks during dips. Citi further added, “We think markets entered Phase 3 of the Credit/Equity clock in February. This is the last part of a bull market. Expensive stocks get more expensive. Indeed, all the great stock market bubbles of the past 30 years have inflated during this phase in the cycle.”

You may be interested to read, Goldman Sachs: These Stocks Could Benefit despite a Tough H2 2018.


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