In a significant shift, Citi has adjusted its outlook on U.S. equities, downgrading all views from ‘overweight’ to ‘neutral’ as of February. This strategic move comes amid concerns that U.S. economic growth is set to disappoint in the upcoming months, according to Dirk Willer, the Head of Macro Strategy and Allocation at Citi. The bank projects a modest 1% growth for 2025, which falls short of broader consensus expectations and signals a stark decline compared to previous years. Despite this, Citi does not foresee a recession in the United States.

U.S. Economic Outlook: A Closer Look

Recent developments have made it increasingly clear that the U.S. economic growth forecast for 2025 is taking a downturn. Willer highlighted a notable point: when tariffs were implemented in 2018, targeted nations faced significant economic challenges. Today, the U.S. is grappling with similar issues due to the looming threat of tariffs.

• Tariff Impacts: If the U.S. imposes tariffs on countries like China, other nations may pivot to alternative suppliers. However, extending tariffs to allies such as Canada and Mexico—integral to the U.S. supply chain—could lead to self-inflicted economic harm.
• Rising Concerns: Willer anticipates a wave of negative economic news, particularly regarding unemployment figures, further complicating the economic landscape.

Citi’s Revised Strategy

In light of these trends, Citi’s decision to downgrade its equity outlook reflects a cautious stance among traders. Willer noted, “No trader would want to take long positions when tariffs are on the horizon.” This strategy underscores the apprehension surrounding the potential fallout from ongoing trade tensions.

Positive Shifts in China

On a brighter note, Citi has raised its forecast for China’s GDP growth to 0.4%, driven by investments in data centers and advancements in artificial intelligence infrastructure. Willer pointed out a notable change in President Xi Jinping’s approach towards the private sector, particularly regarding AI companies. He recognized the necessity for China to enhance its IT capabilities, especially in light of ongoing geopolitical conflicts with the U.S.

• Diplomatic Developments: Talks of former President Donald Trump potentially visiting China to meet with Xi suggest that negotiations may be on the horizon, which could pave the way for new agreements.

In conclusion, while Citi’s equity outlook reflects a cautious approach to U.S. markets amid tariff concerns, there are glimmers of hope in China’s economic strategy and potential diplomatic engagements. As the global economic landscape continues to shift, all eyes will be on how these developments unfold in the coming months.