Citi Cuts US Stocks and Global Tech to Neutral, Turns Overweight on Europe

The team, led by Beata Manthey, also cut European technology to neutral, according to coverage of the client note by Bloomberg and Investing.com. The strategists said Europe excluding the UK is better placed to ride out AI-related volatility and stands to gain more from falling oil prices.

The call matters because Citi had been overweight on the US and on global technology, and because it shows how large investors are reading last week's US midterm elections. Citi said sentiment toward AI had plunged, partly because the results raised questions about the long-term path of AI spending. Democrats won control of both chambers of Congress and have promised closer oversight of the technology, and several newly passed state ballot measures add to the regulatory uncertainty.

The selloff has been steep. Bloomberg data show the Nasdaq 100 lost about $2.3 trillion in market value on Thursday alone, and the S&P 500 had its biggest weekly fall since April 2025. Europe's Stoxx 600, by contrast, ended the week 0.2% higher.

Citi described its move as tactical and driven by positioning. Manthey's team warned that investor positioning in indices such as the Nasdaq, which had been roughly neutral, could slide into net-short territory, and Investing.com reported that the bank estimates a further 5% fall would be needed for positioning there to turn properly negative. The strategists said they would want cleaner positioning, steadier AI sentiment and stable earnings revisions before going back to overweight.

The bank is not turning against equities or against AI. It said demand for computing power should keep supporting data centre construction and that it remains constructive on AI over the medium term. Its market targets for next year stay positive, resting on lower interest rates, resilient economic data and a possible easing of geopolitical risks. It also noted that credit spreads have widened and earnings revisions have slowed, while oil prices and bond yields have fallen.

At the sector level, Citi now favours a mix of economically sensitive and defensive stocks. It raised healthcare to overweight, joining materials, and in Europe it also upgraded food and beverage to overweight.

A separate note from Goldman Sachs strategists, including Guillaume Jaisson, puts numbers on the difference in AI exposure. AI infrastructure stocks make up about 15% of the Stoxx 600 and account for less than a quarter of the index's expected earnings growth in 2027, Goldman said. In the S&P 500 the same group is roughly 40% of the index and more than two-thirds of projected earnings growth. Goldman added that Europe has outperformed the US in each of the eight largest AI-led selloffs since 2023.

The next tests for the AI trade come within days. Nvidia-backed cloud providers CoreWeave and Nebius report earnings this week after their shares lost roughly half their value over the past month, and Nvidia reports on November 17.