Markets

Citi expects stocks to go sideways for a year, suggests defensives

Key Points
  • World stocks will probably tread water for a year, according to Citi strategists, who recommend a more defensive portfolio in the face of the fallout from the coronavirus pandemic.
  • Citi equity strategists are recommending clients play it safe by holding U.S. stocks and health-care shares and reducing exposure to bank shares, as earnings are likely to take a while to recover from the coronavirus fallout.
The New York Stock Exchange (NYSE) is pictures on May 26, 2020 at Wall Street in New York City.
Johannes Eisele | AFP | Getty Images

World stocks will probably tread water for a year, according to Citi strategists, who recommend a more defensive portfolio in the face of the fallout from the coronavirus pandemic.

Citi equity strategists are recommending clients play it safe by holding U.S. stocks and health-care shares and reducing exposure to bank shares, as earnings are likely to take a while to recover from the coronavirus fallout.

"The bullish push from $6 trillion of global quantitative easing is likely to cancel out the bearish drag from the ongoing lockdown," the investment bank's equity strategists said in a note published late on Sunday.

Restrictive measures imposed to contain the virus has ravaged economic activity and hurt demand for risky assets in recent months, but their impact has been offset somewhat by huge asset-buying from central banks, which has supported confidence.

"We would not chase markets higher from current levels," the strategists said.

The note forecasts the S&P 500 to be at 3,160 points in mid-2021, about 1% higher than Friday's close. It expects other major markets from Australia to Europe and Japan to be similarly steady.

The outlook is broadly similar to that outlined by HSBC Private Banking last week, and a touch more downbeat than Credit Suisse which is slightly more positive on equities.

Citi said financials will struggle with prolonged low interest rates, and are best avoided, in favor of defensives such as health care. Citi upgraded its recommendation for the materials sector to overweight and downgraded consumer staples.