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Strategists Downgrade US Equities on Economic Slowdown Concerns
Citi Downgrades Rating to Neutral
Strategists at Citi have downgraded U.S. equities, citing concerns over an economic slowdown that is expected to impact company earnings. After a strong first half of 2023, Citi slashed the rating on U.S. equities to neutral from overweight. According to their analysis, the S&P 500 is projected to pull back 9% and end the year at 4,000. This downgrade comes after the market experienced a significant rally in the first half of the year, with the S&P 500 gaining 15.9%, its best first half performance since 2019.
Potential Pullback for Megacap Growth Stocks
Citi strategists believe that megacap Growth stocks are set for a pullback and that the risks of a U.S. recession still loom. They also highlight that the recent rally in artificial intelligence-related stocks may be overdone. It is worth noting that the tech-heavy Nasdaq Composite had its best first half since 1983, surging 31.7%. However, the market has cooled off in July amid expectations of more rate hikes from the Federal Reserve. Last week, the S&P 500 dropped 1.2%.
Headwinds Putting Pressure on the Market
Citi points out several headwinds that could put pressure on the market, including the potential for a recession and a decrease in inflows into equities. They believe that growth may be set for a pullback as the euphoria around artificial intelligence enters a "digestive phase." Additionally, Citi notes that volatility tends to rise after a significant decline in market breadth. They also expect that the influx of global inflows into Japanese equities will soon peak.
Citi's Forecast Below Wall Street Average
Citi's forecast of 4,000 for the S&P 500 is below the average year-end forecast of 4,227 from Wall Street strategists. While Citi acknowledges the potential for a "soft landing" scenario, they highlight that tightening credit conditions remain a key headwind. Despite the near-term downside, Citi maintains a more constructive medium-term view of the market.
Conclusion: Potential Impact on New Business in a Challenging Market
The recent downgrade of US equities by Citi strategists, driven by concerns over an economic slowdown, carries implications for new businesses entering the market. With a projected pullback of 9% in the S&P 500 and a potential decrease in megacap Growth stocks, it is clear that the investment landscape may become more challenging.
For new businesses seeking to launch and grow, the cautious stance from Citi suggests a need for careful planning and strategic decision-making. With the risks of a US recession looming and the recent rally in artificial intelligence-related stocks potentially being overdone, entrepreneurs should carefully assess market conditions and evaluate the viability of their business models.
The headwinds pointed out by Citi, including the potential for a recession and decreased inflows into equities, may hinder capital availability and investor sentiment. This can make fundraising and attracting investment more difficult for new businesses, especially those in sectors heavily affected by market volatility.
However, despite the short-term downside, Citi maintains a more constructive medium-term view of the market. This suggests that new businesses that can weather the initial storm and position themselves for long-term growth may still find success. The potentially "digestive phase" for artificial intelligence-related stocks may also create opportunities for innovative startups to differentiate themselves and capitalize on emerging trends.
In navigating this challenging market environment, new businesses should consider implementing prudent financial strategies, focusing on sustainable growth, and being adaptable to changing market dynamics. Building a resilient business model that can withstand economic uncertainties will be crucial for success during this period of potential market volatility.
Overall, the downgrade of US equities highlights the need for new businesses to carefully evaluate their strategies and adjust to the changing market conditions. While the challenges are apparent, there may also be opportunities for those who can adapt and position themselves strategically to thrive in a fluctuating market landscape.
Article First Published at: https://www.cnbc.com/2023/07/10/citi-downgrades-us-stocks-sees-sp-500-pull-back-9percent-to-4000.html