Investing.com -- Citi told clients in a note on Friday that the AI trade could remain under pressure after the U.S. midterm elections, and it prefers European stocks over U.S. equities for now.
The bank noted that markets typically pull back ahead of midterms and rally afterward, with its seasonal analysis pointing to November-December S&P 500 returns of 3% to 4%. However, Citi said this year's pre-election weakness had other causes.
"More importantly, the pullback ahead of the midterms was not mostly due to the election, but due to AI financing worries, and oil," the bank wrote.
Citi's research team still expects data centers to get built given strong demand for computing power, but it said their location, design and pace of construction may change after Democrats' gains.
"This is far from ideal for the picks and shovels, including semis," Citi said.
The bank added that its "Generals" index, which tracks how many of the seven largest S&P 500 stocks trade below their 200-day moving averages, is close to triggering a cautionary signal. It expects more rotation out of tech for now.
On Iran, Citi said the election has not clearly changed the war's trajectory, but a renewed escalation does not appear imminent, with a third U.S. aircraft carrier not due in the Gulf until mid- to late November.
Citi added some risk back after the election but chose to do so outside the U.S.
"We prefer to use Europe, given that the AI story remains difficult, while the large move lower in oil should benefit European equities much more, also because it may lead to a more dovish ECB," the bank said.
At the very least, Citi expects European stocks to outperform the U.S.
Original Article
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