Citi downgrades US stocks to ‘neutral’ as AI sell-off, regulatory risks mount

Citigroup strategists downgraded US stocks to “neutral” from “overweight,” saying they wanted to see cleaner investor positioning and more stable sentiment towards artificial intelligence stocks following a sharp sell-off driven by concerns about surging AI spending and tighter regulation, Reuters reported.

“We worry that positioning on key indices, such as the Nasdaq, could reset lower into net-short territory,” strategists led by Beata Manthey said in a note on Monday.

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Citi also cut its ratings on the global and European technology sectors to “neutral” from “overweight.”

Democrat victories in last week’s US midterm elections, including in states where opposition to new data centres has grown, raised fears that stricter regulations could slow the AI infrastructure buildout that helped propel stocks to record highs this year.

The sell-off erased about $3 trillion from the market value of S&P 500 companies.
“Volatility has now turned more broad-based, with a sizable sell-off across regions and sectors in recent days,” Citi told Reuters.Also Read: Fed’s Barkin urges rate policy caution, Goolsbee warns of inflation concerns as AI risks loom

The brokerage upgraded European equities excluding the UK, citing their lower exposure to technology-sector volatility and greater sensitivity to falling oil prices.

At the sector level, Citi raised global healthcare and European food and beverage stocks to “overweight” from “neutral.”

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)