Citigroup is downgrading US equities and the global technology sector to neutral, while upgrading European equities, excluding the UK, to overweight. The strategy shift follows sharp turmoil in international markets, as concerns about tighter regulation of artificial intelligence triggered heavy selling in technology stocks.
Citi’s strategy team, led by Beata Manthey, notes that the S&P 500 recorded its biggest weekly decline since April 2025, while $2.3tn was wiped off the Nasdaq 100’s market capitalisation last Thursday alone. By contrast, Europe’s Stoxx 600 ended the week up 0.2%.
Citi remains positive on the long-term prospects for artificial intelligence, but warns that further selling may follow before investor sentiment stabilises and earnings expectations gain firmer footing.
Europe’s advantage
Manthey believes positions in major indices such as the Nasdaq could fall further, even turning net short. She also notes that volatility is no longer confined to the technology sector, but has spread more widely across markets.
Europe is emerging as a more attractive investment option, given its lower exposure to AI-related stocks and greater diversification across industrial companies, banks and defensive sectors. The region is also expected to benefit more from falling oil prices.
In a similar vein, Goldman Sachs notes that AI infrastructure accounts for about 15% of the Stoxx 600 and contributes less than a quarter of the forecast 9% earnings growth in 2027. In the S&P 500, by contrast, these stocks make up about 40% of the index and more than two-thirds of expected earnings growth.
Goldman also notes that, in the eight biggest waves of mass selling in AI-related stocks since 2023, Europe outperformed the US in every instance.
At sector level, Citi is now shaping its strategy around a mix of cyclical stocks linked to economic activity and defensive picks. It is upgrading healthcare to overweight, adding the sector to materials.
Despite heightened uncertainty, Citi’s outlook for markets remains positive for 2027, with analysts citing the lower trajectory for interest rates, resilient economic data and the prospect of easing geopolitical risks.