Citigroup lowers its rating on US stocks! Warns that the US exceptionalism may pause, and the economic outlook could lag behind the global one

The ongoing sell-off in the U.S. stock market for three consecutive weeks is intensifying, with several Wall Street investment banks downgrading their ratings on U.S. stocks. Citigroup has become the latest investment bank to join this camp.

On Tuesday morning, U.S. stocks saw their three major indices rise and then fall back, with the Nasdaq 100 erasing an initial gain of 0.7% and Tesla giving back nearly 6.4% of its early gains. Market volatility has clearly increased, with the VIX climbing to 28.

Uncertainty over tariffs combined with pressure from U.S. government layoffs has worsened market sentiment, leading several Wall Street investment banks to downgrade their ratings on the U.S. stock market. Citigroup has become the latest institution to adjust its stance, downgrading its rating on U.S. stocks from "overweight" to "neutral."

Citigroup strategists Dirk Willer and others expect in their report that more negative U.S. economic data is likely to emerge in the next three to six months. Citigroup analysts pointed out:

"The U.S. exceptionalism narrative will at least pause for the next few months. The flow of economic news from the U.S. may lag behind other regions of the world in the coming months."

Divergence Among Investment Institutions: Cautious vs. Optimistic

Citigroup's view aligns with that of HSBC. HSBC strategists downgraded their rating on U.S. stocks to "neutral" on Monday, believing that there are currently more attractive investment opportunities in other markets. Meanwhile, Ned Davis Research also made a similar adjustment last week, citing weakening market momentum.

As the tariff dispute escalates, Wall Street strategists are generally concerned that Trump's policies on trade and government employment may hinder U.S. economic growth and shake the market logic of "U.S. exceptionalism."

This year, the "U.S. exceptionalism" trading strategy, which has long been favored by investors, has shown signs of fatigue. Bloomberg data indicates that international stock markets, such as those in China and Europe, have outperformed U.S. stocks. This shift breaks the pattern of U.S. stocks, especially tech stocks, leading the world over the past two years, raising investor doubts about the high valuations of U.S. stocks.

Prominent Wall Street investment banks like JP Morgan and RBC have lowered their optimistic expectations for U.S. stocks this year. Analysts believe that the tariff policies proposed by Trump have triggered concerns about a slowdown in U.S. economic growth. These uncertainties are affecting investor sentiment and market pricing, and the market needs more signals to confirm whether this is a short-term adjustment or the beginning of a long-term trend change.

Mark Richards, head of dynamic multi-asset at BNP Paribas Asset Management, stated: "We are closely monitoring the market, and when investor sentiment is overly pessimistic, there may be investment opportunities, but we believe that time has not yet come." He further explained that while large-scale factor adjustments have led to increased cross-asset volatility, market positioning indicators or the options market have not yet shown sufficient pressure signals.

Michael Wilson, chief U.S. equity strategist at Morgan Stanley, recently warned that as the market continues to weigh growth risks, the market volatility faced by investors may further intensify in the short term. Meanwhile, the U.S. government has stated that the economy is facing a "transition period" and needs "detoxification."

Despite facing short-term volatility, most investors maintain a cautiously optimistic attitude toward the U.S. market and have not turned completely pessimistic Nerea Heras, head of the core fund GMAS at Santander Asset Management, stated: "We are buying on dips, especially in the S&P 500 index, which has been pressured in recent months due to uncertainty surrounding new government measures. Economic data, employment, and corporate investment continue to support this economy."

BlackRock's strategists are more optimistic, disagreeing with the market's concerns about a potential recession in the U.S., believing that the labor market remains strong and corporate earnings are robust.

Jean Boivin and Wei Li, strategists at BlackRock Investment Institute, wrote in a report on March 10: "We still believe that as the construction and application of artificial intelligence advance, earnings growth may expand from the technology sector to other industries and regions. Although policy uncertainty will drive recent market volatility, other factors lead us to continue to overweight U.S. stocks."