Citi upgrades U.S. equities as geopolitical uncertainty drives defensive shift

Investing.com -- Citi revealed in a note on Tuesday that it has upgraded U.S. equities to overweight from neutral, pairing the move with an existing overweight on the U.K. while cutting emerging markets to neutral.

The bank said it is adopting a more defensive tilt in its global equity strategy amid elevated geopolitical uncertainty.

Analyst Beata Manthey explained that the shift is tactical in nature, driven by limited visibility over the medium term following the U.S.-Iran ceasefire and the subsequent announcement of a U.S. naval blockade of the Strait of Hormuz.

Citi's commodities strategists see the Middle East conflict following an "escalate to de-escalate" path, implying higher oil prices in the near term before a move lower toward year-end.

"We adopt a Quality/Defensive tilt in our global equity strategy," Manthey wrote, acknowledging that the allocation reflects the fluidity of geopolitical events rather than a fundamental medium-term view.

Citi’s price targets still imply upside to year-end, assuming an eventual cessation of the U.S.-Iran conflict.

A key risk flagged by the bank is that global equities remain priced for earnings upgrades that may not materialize.

Bottom-up consensus projects 20% global earnings per share growth in 2026, but Citi's top-down models imply only 16%, and the bank warned that earnings growth may be narrowing into a smaller set of sectors and large caps rather than broadening as anticipated.

In sector terms, Citi upgraded global Materials to overweight and downgraded Communication Services to underweight. The bank said that in a quick conflict resolution scenario, it would likely prefer a paired overweight in the U.S. and emerging markets instead.

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