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Citi Warns: ”We Would Not Chase Markets Higher From Current Levels”

Courtesy of ZeroHedge View original post here.

Upbeat mood spilled over from Asian markets to European ones on Monday. China’s blue-chip index (CSI300) jumped over 5%, as investors expect the economy to recover much faster than other countries. While risk-on mood sent global stock markets to four-week highs – Reuters reports that Citi strategists are recommending clients take a more defensive stance in their portfolio as fallout from the virus pandemic will persist.

Citi strategist Robert Buckland published a new note on Sunday - telling clients a more defensive portfolio is needed while reducing bank shares, as earnings are expected to slump for a while. He said financials would struggle with interest rates on a zero lower bound, indicating health care stocks will be some of the best defensive plays in the age of pandemic. 

“The bullish push from $6 trillion of global quantitative easing is likely to cancel out the bearish drag from the ongoing lockdown,” Buckland wrote. 

But, as Reuters notes, the Citi strategist also warned clients: 

“We would not chase markets higher from current levels.” 

Though he said the next dip should be bought with a defensive tilt. 

Buckland reportedly  said the economy remains fragile as virus cases reemerge - indicating 2021 EPS consensus of 30% is too high. He advised clients to continue overweight the US and EM equities, stay neutral on Europe, and underweight Australia and Japan. 

In the last week, we noted several significant factors that could derail the economic recovery and stock market surge:

His estimate for the S&P500 is to trade around 3,160 by the summer of 2021 – which suggests stocks are expected to trade sideways from here, for a considerable amount of time.  

    So, in summary, Citi’s strategist says don’t chase stocks but own them, buy the dip but don’t expect any performance for a year, and Fed liquidity trumps all economic realities (but won’t work going forward). Confused? Citi’s Buckland concludes, buy defensives.


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