Investing.com -- Citi has raised its stance on U.S. equities, citing reduced recession risks following U.S. President Donald Trump's decision to delay reciprocal tariffs for 90 days.
The firm upgraded both U.S. and European stocks to overweight in its Global Asset Allocation (GA) portfolio, pointing to improved conditions for risk assets.
“Buy Nasdaq and EuroStoxx. Both have triggered recently in our global equities VRP tracker,” Citi strategists said, referring to their volatility risk premium signal.
“We like the mix of oversold rebound risk in Nasdaq and large tariff reduction on Europe and trading partners.” The Nasdaq was one of the most oversold indices prior to the announcement, according to the report.
In the Global Macro (BCBA:BMAm) Strategy (GMS) discretionary portfolio, Citi initiated new long positions in the Nasdaq futures contract (NQ1) and Eurostoxx futures (VG1), describing them as tactical trades with solid expected Sharpe ratios.
“These are very tactical trades, and we are cognizant of risks into earnings season from ongoing uncertainty for U.S. firms,” strategists said.
The changes come as Trump lowered the reciprocal tariff rate to 10% and temporarily paused levies on “non-retaliating” countries. Citi notes the “Trump Put” reduces near-term recession probabilities for now and justifies re-risking portfolios.
Alongside the upgrades, Citi also downgraded Hang Seng China Enterprises Index (HSCEI) to Neutral.
In commodities, Citi said the recent value at risk (VAR) shock that pressured large gold positions “now appears to be behind us,” prompting a return to its long-standing bullish view on precious metals.
The Wall Street firm upgraded the asset class back to overweight and re-engaged with long gold trades in its discretionary portfolio.
On copper, Citi closed its underweight stance, citing falling recession probabilities as supportive for a bounce in base metals.
In credit, Citi neutralized its underweight in U.S. investment grade by adding exposure to high yield, expecting spreads to compress as recession fears ease. “HY spreads should compress versus IG, risk adjusted,” the strategists noted.
On the FX front, Citi remains long EURUSD cash, citing potential support from lower tariffs in Europe and the rest of the world.
The strategists see this benefiting the broader reallocation theme. "Uncertainty stays high for U.S. firms, [which] can help further the reallocation theme we have been writing about," strategists said.