Citigroup Strategists Advise Buying Global Equities as Rates Peak
Citigroup Inc. strategists suggest that now is the opportune time to invest in global equities following a recent pullback that brought them close to a correction. The strategists, led by Beata Manthey, forecast a 15% increase in the MSCI All-Country World Local Index by mid-2024, citing a more balanced macroeconomic outlook. They favor sectors tied to the economic cycle, known as cyclical stocks, as they anticipate a peak in interest rates, a mild growth slowdown, and a gradual cooling in inflation.
Manthey emphasized the attractive entry point created by the recent selloff and advised buying dips based on Citi's Bear Market Checklist, which considers metrics such as stock valuations, the yield curve, investor sentiment, and profitability. The surge in US bond yields has caused market turbulence, with concerns that central banks will maintain a hawkish stance for an extended period. The MSCI all-country index experienced a significant decline, nearing the technical correction threshold of 10%.
While Manthey expects rates to remain elevated, she believes that growth stocks are now oversold. As a result, she upgraded her rating on global technology stocks to overweight. However, she downgraded UK stocks to underweight due to the FTSE 100 index's defensive tilt and exposure to the energy sector, which she anticipates will face pressure as oil prices retreat.
In contrast, Bank of America Corp. strategist Michael Hartnett believes that both stocks and bonds are oversold. However, he maintains a bearish outlook on risk assets, anticipating a hard economic landing in response to higher-for-longer rates.
Implications for New Businesses Amid Global Equities Market Dynamics
The advice from Citigroup strategists to buy global equities as rates peak presents a compelling opportunity for new businesses. This could be an opportune time for startups to secure investment, leveraging the attractive entry point created by the recent market selloff. However, businesses must be mindful of the potential challenges posed by the anticipated peak in interest rates, a mild growth slowdown, and cooling inflation.
Understanding Market Dynamics
The strategists' emphasis on cyclical stocks tied to the economic cycle suggests that new businesses in these sectors may see increased investor interest. However, the turbulence caused by the surge in US bond yields and the hawkish stance of central banks could impact the financial stability of startups, particularly those reliant on debt financing.
Investment Opportunities and Risks
While growth stocks are considered oversold and global technology stocks have been upgraded to overweight, new tech businesses might attract more investors. Conversely, the downgrade of UK stocks due to the defensive tilt of the FTSE 100 index and exposure to the energy sector signals potential risks for startups in these areas.
In conclusion, while the current market dynamics present potential opportunities for new businesses, they also underscore the need for careful risk assessment and strategic financial planning.