Citibank turns bullish on US stocks: Tech stocks drive earnings growth, valuation attractiveness rises after pullback

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Citigroup has joined the Wall Street bullish camp, raising its US stock rating while downgrading its emerging market rating. Behind this adjustment lies a divergence between the resilience of tech earnings and the risks of energy shocks.

On Monday, Citigroup upgraded its US stock rating from "neutral" to "overweight," based mainly on three considerations: recent valuations have become reasonable after the correction; tech stocks' contribution to global earnings growth continues to expand and are expected to account for about half of global earnings growth; expectations of easing tensions in the Middle East have also reduced the tail risk of inflation driven by oil prices to a certain extent.

The S&P 500 index has rebounded nearly 9% from its seven-month low at the end of March. Citigroup strategists noted that after repricing, the premium of US stocks relative to developed markets outside the US has approached historical averages, and the attractiveness of valuations has improved. On the same day, BlackRock Investment Institute also upgraded its US stock rating, and multiple institutions expressed preference for US stocks over global peer assets.

In contrast, Citigroup downgraded its emerging market stock rating to "neutral" and gave an "underweight" rating to the global communications services sector. The risk of energy shocks continues to weigh on the performance of emerging markets, making it one of the key factors in this rating adjustment.

Tech Sector Leads Global Earnings Growth

The research report emphasized that although global earnings per share across industries is expected to grow by 2026, about 50% of this increase is projected to come from the tech sector. This highly concentrated earnings structure is the core logic behind the bullish view on US stocks—the weighting of US tech companies in global earnings growth continues to rise, giving US stocks a structural advantage in global allocation.

Meanwhile, the rating for emerging market stocks has been downgraded to "neutral." The report noted that many emerging market economies are highly sensitive to shortages in physical energy; the Iran conflict has pushed up oil prices, exacerbating inflation pressure in energy-importing countries, worsening external accounts, and increasing capital outflow risks. The MSCI Emerging Markets Index has fallen by a cumulative 2.8% since the conflict broke out.

A stronger US dollar has further amplified these pressures, posing additional resistance to emerging market assets. Notably, the year-end target for the MSCI Emerging Markets Index has been raised from 1540 to 1770, showing that mid-term prospects for emerging markets are not entirely pessimistic, but risk factors still dominate in the short term.

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