MW Citigroup downgrades its stance on U.S. stocks. These bearish signals have been triggered, bank says.

By Barbara Kollmeyer

Strategists at Citi are keen on China tech instead

Just when investors thought it couldn't get worse, Monday's brutal selloff was a hold-their-beer day.

And while Tuesday is looking a bit better, speculation on whether stocks have bottomed should probably wait until a CPI update on Wednesday. Softer-than-forecast data could relay the message that there's room for the Fed to ease, bringing some relief to stocks, but higher inflation might do the opposite, and send stocks sinking again.

Wall Street strategists, who headed into 2025 armed with bullish forecasts are getting cautious. Citigroup has now joined that camp, as it has just downgraded U.S. equities to neutral from an overweight, or bullish, stance since Oct. 2023.

In our call of the day, a team of Citi strategists led by Dirk Willer said it's now clear that "U.S. exceptionalism is at least pausing." Alongside that shift, they upgraded China stocks to overweight, which in balance, now leaves their overall global equity view at neutral.

Willer and the team explained that two of their bearish signals have now been triggered for U.S. stocks. One was the S&P 500 breaking its 200-day moving average "at a time when the market is/has been extended."

The second signal was triggered when four of seven "generals," referring to the major technology stocks that have been leading the market higher for the past two years, fade for at least five days, said the strategists.

Already mired in a tough year, the "Magnificent Seven" grouping of large technology stocks collectively lost $759 billion in market cap on Monday, the biggest one-day loss of market cap on record.

Read: Apple and Nvidia led Monday's $750 billion tech wreck. How to play the aftermath.

Last week, the Citi strategists saw some of those bearish signals were close to triggering, but were reluctant to move forward until after Friday's payrolls data, which could have changed the market's trajectory. The data not only didn't do that, but Citi's economists believes it was probably the last strong jobs report before DOGE cuts, voluntary resignations and a weaker economy kick in.

Willer and his team stressed that the neutral view for U.S. stocks is on a three to six-month view. "In the bigger picture, we doubt that the AI bubble is already fully played out, and we would expect for the U.S. to remain one of the leaders, maybe jointly with China, while the AI theme is intact," they said.

"But for reasons mentioned above, we believe this is unlikely to be the right view for today, as we expect more negative U.S. data prints."

As for China stocks, the strategists said those assets have been screening as attractive for some time, but they've been wary up to now due to tariff risks. The strategists flagged two big reasons to love China right now: 1) DeepSeek has "proved that China tech is at the Western technological frontier (or beyond) despite export controls and 2)President Xi Jinping has embraced the tech sector, albeit belatedly. The sector is still relatively cheap versus other global AI assets, even after a big rally.

Citi strategists prefer the Hang Seng China Enterprises Index CN:160462 which is up 20% year-to-date, as they said the index outperformed the Shanghai Composite CN:SHCOMP during the 2018 tariff wars. The Hang Seng Tech index XX:HSXTCHINDXXX has climbed 33% so far this year, versus a nearly 10% drop for the Nasdaq Composite COMP. The U.S.-listed KraneShares CSI China Internet ETF KWEB has shot up 21% this year.

The Citi strategists argued that there might be some dovish signs on the horizon, such as a report that President Trump may visit Xi in China as soon as next month. Tariffs on China, said Willer and his team, have already risen by 20% and "have had a limited impact on the market," and in their view, the U.S. will likely be in "deal-making mode."

Read: Tom Lee calls Monday's stock-market tumble an overreaction. What to watch now.

The markets

After the worst day for the S&P 500 SPX since December, U.S. stock futures (ES00) (YM00) (NQ00) are pointing higher, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y. The dollar DXY is weaker.

   Key asset performance                                                Last       5d      1m       YTD     1y 
   S&P 500                                                              5614.56    -4.02%  -7.45%   -4.54%  9.70% 
   Nasdaq Composite                                                     17,468.32  -4.81%  -11.39%  -9.54%  9.05% 
   10-year Treasury                                                     4.197      -5.10   -33.50   -37.90  3.70 
   Gold                                                                 2904.5     0.01%   -1.10%   10.05%  32.68% 
   Oil                                                                  66.09      -3.48%  -8.80%   -8.04%  -15.41% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Oracle stock $(ORCL)$ fell in late trade following disappointing revenue, largely due to cloud-services.

Delta Air Lines $(DAL)$ stock fell after a warning on domestic demand, dragging other travel stocks lower as well.

A small-business optimism index fell, as the uncertainty index rose to the second highest level ever. Job openings data is due at 10 a.m. Eastern.

President Trump is due make remarks at a Business Roundtable meeting at 5 p.m.

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The chart

The chart from Goldman Sachs maps out where the bank sees U.S. tariffs hitting on different sectors on countries and sectors. Goldman cut its U.S. growth forecasts on Monday, not for data, but because of a more negative view on those duties. "We now see the average U.S. tariff rate rising by 10pp this year, twice our previous forecast and about five times the increase seen in the first Trump administration," said chief economist Jan Hatzius.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   PLTR    Palantir Technologies 
   GME     GameStop 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   NIO     NIO 
   AMZN    Amazon.com 
   MSTR    MicroStrategy 
   HOLO    MicroCloud Hologram 

Random reads

Why your pet can't stop watching this Latvian flick.

Better 99-years late than never. Library gets its book back.

-Barbara Kollmeyer

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(END) Dow Jones Newswires

March 11, 2025 06:43 ET (10:43 GMT)

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