Citi downgrades US stocks to 'neutral' amid recent market rout, upgrades China

Wall street indices have logged in three straight weeks of losses.

Giving another blow to the market rout in Wall street, global brokerage Citi downgraded its outlook on US stocks to 'neutral' from the previous 'overweight,' basing its decision on recession fears and weakening economic momentum. The downgrade came after the Nasdaq plunged 4 percent, logging in its steepest single-day fall since 2022, and the S&P 500 fell 2.7 percent its worst decline in the year so far.  On the other hand, the firm upgraded China to 'overweight' on stronger GDP growth forecasts and AI-driven investments.

For the US, Citi’s global head of macro strategy, Dirk Willer, named two key market signals as factors signalling weakness ahead. Firstly, the S&P 500 broke below its 200-day moving average and secondly, the underperformance of market-leading stocks. He noted that while US equities may regain their edge once the AI-driven rally resumes, near-term growth is expected to lag behind global markets.

Meanwhile, Citi raised its forecast for China’s GDP growth to 4.7 percent from 4.5 percent, citing increased AI investments. Willer highlighted that China's tech sector remains undervalued compared to global peers, presenting an attractive opportunity despite the tariff risks. He also suggested that progress in US-China trade talks could be a major positive catalyst.

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