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Another group of Wall Street market strategists have signaled to their clients that it’s time to buy back stocks, especially stocks that don’t trade in the United States.
As global equity funds saw their first net inflows in the past week since April, a group of Citigroup analysts advised clients concerned about the sustainability of the rebound that they better buy stocks European or emerging markets, which have more attractive valuations than the United States.
To see: Global investors pour money into stocks for first time in months
The S&P 500 SPX index,
and Stoxx Europe 600SXXP,
have both fallen around 16% since the start of the year, while the MSCI Emerging Markets EEM Index,
fell 17% in US dollars and fell almost 25% in the last 12 months.
“For concerned investors, it is too early to jump into the US market, perhaps buying dips in Europe and emerging markets is a safer move,” wrote a team of strategists led by Robert Buckland from Citi in a note.
As analysts assess whether the latest rebound in stocks will last or fizzle out in the days and weeks ahead, the Citi team highlighted its “red flag” checklist, which assesses stocks based on a range of characteristics, including valuations, credit spreads, profitability, number of recent IPOs and general analyst optimism.
The fewer “red flags” there are, the higher the likelihood that stocks will trade higher over 12 months — at least, that’s been the general trend in the past, the Citi team said.
U.S. stocks raised more red flags on Citi’s watchlist when markets peaked last year compared to European and emerging markets, which is one reason the team was more bullish on emerging markets.
Regarding the outlook for a global recession, another team of Citi analysts decided to reduce its allocation to US equities to neutral, while remaining invested in Chinese and British equities relative to Europe. They were also underweight U.S. and European credit, which they said often trades poorly as a recession approaches, even though a recession is not the base case for Citi economists.
They therefore reduced their allocation to US equities to neutral, while maintaining underweight ratings across the entire US and European credit stack.
However, there was one notable exception to this: the team moved its recommendation for US Treasuries from underweight to neutral, a move that comes as Treasury yields have fallen off their highs in recent times. days.
Finally, the team was careful to differentiate between desirable and undesirable sectors, taking a long position in healthcare and consumer staples stocks, while advising clients to reduce their allocations to technology stocks and financial.
