Citi expects stocks to go sideways for a year, suggests defensives

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Citi equity strategists are recommending clients play it safe by holding U.S. stocks and healthcare shares and reducing exposure to bank shares, as earnings are likely to take a while to recover from the coronavirus fallout.

“The bullish push from $6 trillion of global quantitative easing is likely to cancel out the bearish drag from the ongoing lockdown,” the investment bank’s equity strategists said in a note published late on Sunday.

Restrictive measures imposed to contain the virus has ravaged economic activity and hurt demand for risky assets in recent months, but their impact has been offset somewhat by huge asset buying from central banks, which has supported confidence.

“We would not chase markets higher from current levels,” the strategists said.

The note forecasts the S&P 500 (SPX) to be at 3,160 points in mid-2021, about 1% higher than Friday’s close. It expects other major markets from Australia (AXJO) to Europe (STOXX) and Japan (TOPX) to be similarly steady.

The outlook is broadly similar to that outlined by HSBC Private Banking last week, and a touch more downbeat than Credit Suisse (SIX:CSGN) which is slightly more positive on equities.

Citi said financials will struggle with prolonged low interest rates, and are best avoided, in favour of defensives such as health care. Citi upgraded its recommendation for the materials sector to overweight and downgraded consumer staples.

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