Key Takeaways
- Citi raised its stance on US equities from “Neutral” to “Overweight,” highlighting attractive valuations and technology-driven earnings momentum
- BlackRock similarly elevated US stocks to overweight status, emphasizing solid corporate earnings and controlled fallout from Middle East tensions
- First-quarter profit growth for S&P 500 firms is forecast at 12.6%, with potential to reach 19% should companies exceed expectations
- Technology sector earnings are anticipated to surge 45% in 2025, while valuations relative to other sectors sit at their most attractive levels since summer 2020
- Emerging market equities were downgraded by Citi to “Neutral,” though the firm lifted its MSCI EM year-end projection to 1,770 from 1,540
Two of Wall Street’s most influential financial institutions have simultaneously lifted their ratings on American equities to overweight positions, citing durable corporate profitability and indications that Middle Eastern geopolitical turbulence may be stabilizing.
These strategic shifts arrive as the S&P 500 has rebounded approximately 9% from its seven-month nadir reached in the final days of March. While volatility stemming from Iran-related developments and petroleum price fluctuations has unsettled investors, both organizations now perceive improved clarity regarding market direction.
Citi strategist Beata Manthey characterized the adjustment as a tactical positioning move rather than a structural long-term conviction. The decision reflects uncertain conditions following the US-Iran ceasefire agreement and America’s naval enforcement operations in the Strait of Hormuz.
“We adopt a Quality/Defensive tilt in our global equity strategy,” Manthey explained, emphasizing that the positioning hinges on geopolitical developments rather than representing a definitive medium-term outlook.
According to Citi’s analysis, American markets have experienced multiple compression and currently trade at a premium versus other developed economies that approximates historical norms. This valuation adjustment enhances the appeal of US stocks following the recent market correction.
The investment bank also identified a potential headwind: global equity markets remain priced for consensus earnings revisions that may prove overly optimistic. While bottom-up analyst projections anticipate 20% global EPS expansion in 2026, Citi’s proprietary top-down models suggest a more modest 16% growth trajectory.
Technology Sector Powers Optimistic Outlook
A substantial portion of both institutions’ constructive stance stems from the technology industry. Citi calculates that approximately half of all global earnings growth during 2026 will originate from technology companies exclusively.
Technology sector profits are projected to expand 45% throughout the current year. Despite this robust forecast, the sector has generated only moderate returns thus far, creating what appears to be a valuation discount. BlackRock observed that information technology valuations compared to other sectors have reached their lowest point since the middle of 2020.
S&P 500 constituent companies are collectively expected to post a 12.6% increase in first-quarter earnings, according to FactSet data. Historical patterns suggest that if corporations exceed analyst estimates as they typically do, actual growth could accelerate to 19%.
BlackRock indicated it re-established risk asset positions after observing two critical developments: concrete measures to restore shipping access through the Strait of Hormuz, and evidence that macroeconomic disruption from the conflict would remain limited.
“The threshold for the US and Iran to go back to war is high,” the asset manager stated, suggesting reduced probability of severe economic consequences.
Strategic Sector Adjustments and Emerging Market Views
Alongside its geographic allocation changes, Citi implemented sector-level modifications. The firm elevated global Materials stocks to overweight, referencing improved earnings trends and compelling valuations. Conversely, it reduced Communication Services to underweight status.
Regarding developing economies, Citi lowered emerging markets to “Neutral” positioning, highlighting vulnerabilities from energy price shocks and foreign exchange pressures. The MSCI Emerging Markets benchmark has declined 2.8% since conflict escalation began.
Despite the rating downgrade, Citi increased its year-end MSCI EM target to 1,770 from 1,540, indicating a more constructive intermediate-term perspective.
BlackRock maintained overweight allocations exclusively to the United States and emerging markets, concentrating on profit margin sustainability throughout the ongoing earnings reporting period.
Citi’s valuation targets continue to suggest upside potential through year-end, contingent upon eventual de-escalation of US-Iran hostilities.
