Citigroup Downgrades US Stock Market Investment Rating to 'Neutral' "Treasury Yields Expected to Rebound"

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Citigroup has lowered its investment rating on the U.S. stock market from 'overweight' to 'neutral,' anticipating a rise in U.S. Treasury yields, Bloomberg reported on the 4th (local time).

Citigroup analyzed that U.S. Treasury yields will rise due to economic recovery and the possibility of monetary policy tightening, which would pose a burden on the stock market. In particular, it pointed out that IT companies, which have a high weighting in the U.S. stock market, are vulnerable to interest rate hikes.

U.S. Treasury yields have recently fallen sharply. The 10-year Treasury yield dropped from 1.7% in early May to around 1.1% currently.

However, Citigroup expects the recent decline in yields to be temporary and predicts that yields will rise to 2% next year. In a Bloomberg survey, Wall Street analysts also forecast that the 10-year Treasury yield will rise to about 1.8% by the end of this year. Citigroup expects the 10-year Treasury yield to rebound soon and reach 2%.

Citigroup foresees that the rise in U.S. Treasury yields will not be fatal to global stock markets. It expects strong corporate earnings growth expectations to support risk asset preference sentiment.

On the other hand, it diagnosed that expectations for corporate earnings growth are already largely reflected in the U.S. stock market. In the U.S., rapid vaccine distribution has led to expectations of high economic growth and corporate earnings growth this year. As the earnings season for U.S. companies' Q2 results nears its end, the Q2 net profit growth rate exceeds 60%. Accordingly, the New York stock market is also recording higher returns this year compared to other markets.

As of the 4th, the S&P 500 index's gain rate is 17.2%, surpassing the Euro Stoxx 50 index (16.7%), Germany's DAX index (14.4%), Japan's Nikkei 225 index (0.51%), and China's Shanghai Composite index (0.12%).

Citigroup upgraded its investment rating on the Japanese stock market to overweight and maintained an overweight rating on the UK stock market. Regarding sectors, it expects financials and materials-related stocks to be promising going forward.

This content was produced with the assistance of AI translation services.