Citi Downgrades American Stocks, Forecasts Flat Equities in 2021

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With the financial markets ignoring the turmoil caused from the riots and confusion on Capitol Hill yesterday, delaying the certification of electors for President-Elect Joe Biden, both the Dow Jones Industrial Average and S%P 500 hit new highs at close on Wednesday and the Nikkei 225 notching another 30 year record on Thursday. However investor optimism may be tepid as 2021 continues, and Citi’s Global Strategy Team said that global stocks will likely be flat throughout the year.

 

Citi’s investment bank strategists have predicted an increase of about 2% in the benchmark MSCI All Countries World Index over the whole of 2021 and have decreased their inclination for growth sectors in favor of rotation into value stocks. This cooling off on the long-held bias of growth stocks, which have historically kept their rating on the United States market overweight, is part of the idea behind downgrading the market of the United States to neutral.

 

Other factors being used in the downgrade is that the United States fiscal deficit is a likely threat to the value of the dollar, making it susceptible to being weakened this year, which will help boost emerging markets and commodity stocks. On the flip side, it appears that bond yields may rise, being helped by a global economic recovery with Citi projecting that the 10 year United States Treasury yield, which is currently about 1%, should hit 1.25% in the next few months and will likely top 1.45% by the end of the year. This should help both financial and energy companies, which are stalwarts of value stock markets.

 

Citi expects that the best market for returns for 2021 will be the United Kingdom, where Citi expects growth of about 7% for the FTSE 100, and Australia where they expect the S&P/ASX 200 to rise 6%. Other markets of note are emerging markets where China, South Korea, and Russia are singled out by the strategists for growth. This “mildly optimistic” view on global equities hinges on the successfulness of the coronavirus vaccines in jumpstarting economies around the world. The economists at City are expecting a 5% increase in global gross domestic product levels for 2021, compared to the 3.9% contraction in 2020. Both of those factors may help boost the recovery in corporate profits, as most companies earnings per share were down this year due to the pandemic and effects of it on the general business sector.

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