The Wall Street firm slashed the rating to neutral from overweight on Monday, and said the S & P 500 will pull back 9% to end the year at 4,000. The equity benchmark closed Friday's session at 4,398.95. "After a solid 1H, US outperformance may go on pause," Citi strategists said in a note. "Our US Strategy team thinks megacap Growth is set for a pullback, while US recession risks could still bite.
Citi said the run-up in artificial intelligence related stocks could be overdone. Meanwhile, other headwinds could put pressure on the market, including a potential recession and waning inflows into equities. "Growth may be set for a pullback as AI euphoria enters a digestive phase. Recession risks remains elevated. Volatility tends to rise after a sharp fall in market breadth. Global inflows boosting the Japanese equities should peak soon," Citi said.