Citi updated its global equity recommendations in a note on Tuesday, raising its view on U.S. equities from neutral to overweight while keeping an existing overweight on the U.K. at the same time trimming emerging markets to neutral.
The bank said the repositioning reflects a more defensive approach, prompted by elevated geopolitical uncertainty. Analyst Beata Manthey characterized the shift as tactical, attributing it to limited visibility over the medium term that followed a U.S.-Iran ceasefire and the subsequent announcement of a U.S. naval blockade of the Strait of Hormuz.
In its view of commodity markets, Citi's strategists foresee the Middle East conflict taking an "escalate to de-escalate" trajectory. That pathway, the bank said, would likely push oil prices higher in the near term before they move lower toward the end of the year.
"We adopt a Quality/Defensive tilt in our global equity strategy," Manthey wrote, noting that the allocation change reflects the fluidity of geopolitical events rather than a change in the bank's fundamental medium-term outlook.
Citi added that its price targets still indicate potential upside to year-end, but that expectation rests on an assumption of an eventual cessation of the U.S.-Iran conflict.
The bank also flagged a key market risk: global equities appear to be priced for earnings upgrades that may not materialize. Bottom-up consensus forecasts call for 20% global earnings per share growth in 2026, while Citi's top-down models suggest a lower number of 16%.
Citi warned that earnings growth might concentrate in a narrower set of sectors and among larger-cap names, rather than broadening across markets as some forecasts assume.
On a sector basis, the bank upgraded global Materials to overweight and downgraded Communication Services to underweight. Citi said that if the conflict resolves quickly, it would likely favor a paired overweight in the U.S. and emerging markets instead.
Details in the note emphasize a tactical, defensive posture driven by the current geopolitical backdrop and a cautious view on the breadth of future earnings improvement. The allocation adjustments and sector calls are positioned to reflect short-term market risks rather than an altered long-term view.