Citigroup strategists reaffirmed their modestly bullish stance on equities, arguing that the usual conditions that have historically marked the ends of bull markets are not evident in the current cycle.
Reviewing past major equity peaks, the bank points to a consistent pattern: the S&P 500 top in 2000 followed 175 basis points of Federal Reserve hikes; the 2007 peak arrived after 425 basis points of tightening; a pullback in 2018 was associated with 225 basis points of hikes; and the 2022 selloff corresponded with a 525 basis point hiking cycle. By contrast, Citi notes that only the COVID crash and the brief "Liberation Day" selloff were notable exceptions in which rates did not play a central role.
On that basis the strategists wrote: "Given that the Fed has not even hiked once and the Fed’s balance sheet is still rising, we think the bull market is likely still intact." That assessment underpins the bank's continued positive one-notch overweight on equities, with the allocation emphasis placed on the U.S. and emerging-market Asia.
While endorsing equity exposure, the strategists also highlighted where risks have become more pronounced. They called out AI-related trades and their EM Asia positions as the most elevated in terms of positioning risk. Within EM Asia, Citi singled out South Korea's KOSPI, saying positioning there has fallen materially since before the Iran conflict, even as major U.S. indices such as the Nasdaq and the S&P 500 have continued to advance.
On targets, Citi recently lifted its 2026 S&P 500 forecast to 8,100 from 7,700, attributing the change to continued strength in earnings momentum.
Regionally, the bank added a tactical long on Europe's Euro Stoxx 50 index in the wake of a U.S.-Iran memorandum of understanding announcement, but it stopped short of shifting its broader regional stance. Citi remains neutral on European equities in its overall allocation. The strategists argued that the recent relative strength in European shares has been driven in part by the region's status as a net oil importer, which benefits from lower energy prices, a dynamic they expect may not be sustainable.
On structural drivers, Citi's team said: "We still think it is premature to call for the end of the AI trade," describing AI as the principal structural force underpinning global equity markets. They noted that this structural theme is largely absent in European markets, reinforcing the bank's reluctance to move to a more permanent European equities weight.
Macro conditions cited as relevant to the regional outlook include the de-escalation of the Iran conflict as reflected in market pricing and the fact that the European Central Bank is among the limited group of G10 central banks that have already begun hiking rates. Taken together, Citi concluded it is not yet appropriate to establish a more structural position in European equities.
Sector recommendations from the strategists emphasize Industrials as the preferred add in the U.S., paired with continued exposure to Technology as earnings season approaches. Industrials rate in the 87th percentile on earnings revisions over the past year, according to Citi, and present less crowding than Financials, Technology, and Communications Services. Technology earnings revisions have not led on a rolling percentile basis, but they have remained robust throughout the year.
Overall, Citi's allocation view blends a measured bullishness on equities with selectively expressed tactical bets and explicit cautions about pockets of concentrated positioning risk. The bank's raised S&P 500 target and its sector biases reflect a view that earnings momentum and structural themes such as AI continue to support higher equity valuations, while regional and trade-specific risks warrant a cautious, selectively tactical approach.