- Citi remains Overweight equities and advises adding exposure on any pre-midterm pullback.
- The bank sees supportive earnings revisions, improving liquidity, and limited warning signs despite AI concerns.
- Historical patterns suggest pre-midterm weakness often leads to strong year-end performance.
A Buying Opportunity?
With the U.S. midterm elections looming, Citi analysts are telling clients to view any market dip as a chance to add equity exposure. The bank stays Overweight on equities, citing a confluence of factors that could limit downside and set the stage for a year-end rally.
"We recommend buying any pre-midterm weakness," said a Citi strategist in a note to clients, emphasizing that recent market jitters over AI-related concerns are not yet flashing systemic warning signs. Instead, the bank points to supportive earnings revisions and improving liquidity conditions as reasons to stay bullish.
Sector Rotation as a Shield
Citi believes that ongoing sector rotation could cap downside risks, even if volatility persists. The bank's analysts note that while technology and AI-heavy names have faced scrutiny, other sectors are picking up the slack, providing a buffer against broad market declines.
"Rotation is a healthy sign," the strategist added, "and it suggests that investors are repositioning rather than retreating."
Historical Precedent
Looking back at previous midterm cycles, Citi notes that pre-election weakness has often been followed by robust performance in the final months of the year. This pattern, combined with current fundamentals, underpins the bank's conviction that any dip is a potential entry point.
"We see this as a tactical opportunity," the note said, urging investors to stay the course despite near-term uncertainty.
As the election approaches, Citi remains focused on U.S. equities, favoring domestic exposure over international markets. The bank's advice: don't fear the dip—embrace it.
This article was updated to clarify Citi's stance on sector rotation.