TLDR
- Citi upgraded US equities to “Overweight” from “Neutral,” citing improved valuations and tech-led earnings growth
- BlackRock also upgraded US equities to overweight, pointing to stronger earnings and limited macro damage from the Iran conflict
- S&P 500 companies are projected to deliver 12.6% profit growth in Q1, potentially rising to 19% if earnings beats hold
- Tech sector profits are expected to grow 45% this year, with valuations at their lowest relative to other sectors since mid-2020
- Citi downgraded emerging markets to “Neutral” but raised its year-end MSCI EM target to 1,770 from 1,540
Citi and BlackRock have both upgraded US equities to overweight, driven by resilient corporate earnings and signs that geopolitical risks from the Iran conflict may be contained.
The moves come as the S&P 500 has bounced nearly 9% from a seven-month low hit in late March. Markets have been rattled by the Iran war and swings in oil prices, but both firms now see a clearer path forward.
Citi strategist Beata Manthey said the upgrade is tactical rather than a long-term call. It reflects limited visibility after the US-Iran ceasefire and a US naval blockade of the Strait of Hormuz.
“We adopt a Quality/Defensive tilt in our global equity strategy,” Manthey wrote, noting the allocation is tied to how geopolitical events unfold rather than a firm medium-term view.
Citi said the US market has “derated” and now trades at a premium to other developed markets that is close to historical averages. That makes valuations more palatable after the recent pullback.
The bank also flagged a key risk: global equities are still priced for earnings upgrades that may not come. Bottom-up consensus projects 20% global EPS growth in 2026, but Citi’s own top-down models point to just 16%.
Tech Earnings Drive the Bull Case
A big part of both firms’ optimism rests on technology. Citi estimates roughly 50% of all global earnings growth in 2026 will come from the tech sector alone.
Tech profits are expected to jump 45% this year. Despite that outlook, the sector has posted only modest gains so far, leaving valuations looking relatively cheap. BlackRock noted that IT valuations versus other sectors are at their lowest since mid-2020.
S&P 500 companies overall are projected to report a 12.6% rise in Q1 profits, per FactSet. If the usual pattern of earnings beats plays out, that number could climb to 19%.
BlackRock said it re-entered risk assets after seeing two key signals: evidence of actions to reopen the Strait of Hormuz, and signs that the macro damage from the conflict would be contained.
“The threshold for the US and Iran to go back to war is high,” the firm said, which limits the risk of a deeper economic hit.
Sector Moves and EM Positioning
Citi also made sector changes alongside its regional calls. It upgraded global Materials to overweight, citing better earnings momentum and valuations. It cut Communication Services to underweight.
On emerging markets, Citi downgraded the region to “Neutral,” pointing to risks from energy shocks and currency pressure. The MSCI Emerging Markets index has fallen 2.8% since the conflict began.
Still, Citi raised its year-end MSCI EM target to 1,770 from 1,540, suggesting a more positive medium-term view.
BlackRock kept both the US and emerging markets as its only overweight regions, with a focus on profit margins during the current earnings season.
Citi’s price targets continue to imply upside to year-end, assuming the US-Iran conflict eventually winds down.
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