American banking giant Citigroup (C) has lowered its rating on U.S. stocks to “neutral” (hold) from a previous rating of “overweight” (buy).
In a note to clients, Citigroup said it was prompted to lower its rating on American equities by what it sees as the growing risk of a recession in the U.S. during this year’s second half and leading into 2024.
Citigroup also warned that the U.S. stock market is set for a pullback over the next six months as the excitement surrounding artificial intelligence (A.I.) subsides.
U.S. stocks had an excellent run in this year’s first half, with the benchmark S&P 500 index gaining 16% between January and the end of June.
The Nasdaq index, which is mostly comprised of technology stocks, increased 32% in this year’s first half, its best six-month stretch in 40 years.
However, Citigroup pointed out that the stock market gains in the first half of 2023 were largely concentrated in a handful of tech stocks that have exposure to A.I., such as Nvidia (NVDA) and Microsoft (MSFT).
Going forward, Citigroup is less bullish on equities as the U.S. Federal Reserve signals more interest rates increases are likely in coming months, and the American economy slows and possibly enters a recession.
Citigroup’s own stock is flat (down 0.97%) over the last 12 months and trading at $45.74 U.S. per share.
