Street Calls of the Week
Investing.com -- Global equities are set to deliver more gains over the coming months, with Europe and Japan expected to outperform, according to Citi strategists.
The Wall Street bank sees two possible scenarios ahead: a soft landing supported by Federal Reserve easing, which would broaden market leadership to cyclical, value, and small- and mid-cap stocks, or weaker growth that could shift investors toward a “growth is defensive” positioning.
Citi recommends balancing between the two paths. Strategists advise maintaining a cyclical tilt with an overweight stance on Europe and financials, while combining this with a megacap growth bias in the U.S.
“We see most upside for Stoxx Europe 600 (+9%), Japan’s TOPIX (+9%) by mid-2026, while S&P 500 is forecast to gain 6% over the period,” a team led by Beata Manthey said.
In sector calls, the bank upgraded Retail to overweight and Telecoms to neutral, while downgrading Media and Personal Care to neutral.
It pointed to signs of stabilization in earnings expectations after some downward revisions. Consensus now points to global EPS growth of 9% in 2025, with Europe expected to remain flat.
By 2026, Citi forecasts earnings growth of 12% globally and 11% in Europe.
Despite the constructive outlook, strategists flagged risks from valuations, particularly in the U.S.
They cautioned that valuations remain stretched, particularly in the U.S., which could limit further gains if earnings growth falls short.
European equities slipped on Wednesday, giving up earlier gains as strength in Inditex was outweighed by weakness in the technology sector.
Tech shares led the decline, dropping 1.65% to end a five-session rally, the longest stretch of gains in three months.
Investors are now turning their attention to the European Central Bank’s policy announcement on Thursday, where rates are expected to remain unchanged.
In the U.S., focus is on the upcoming consumer price index (CPI) release.