Citigroup (NYSE: C) has downgraded its outlook on U.S. equities and technology stocks to neutral, a notable call arriving just as markets are celebrating their strongest weekly performance since April 2025.
The bank is now overweighting the rest of the world, with Europe receiving particular favor in a shift that would have seemed unlikely just months ago.
Citi analysts argue that Europe’s comparatively limited exposure to artificial intelligence, long viewed as a liability, may now represent a relative advantage given how stretched U.S. tech valuations have become.
Meanwhile, the European market is seen as offering broader sectoral participation than its American counterpart, which remains heavily concentrated in a narrow group of technology names.
The rally that Citi is now second-guessing was fueled in part by the midterm election results, which analysts on Yahoo Finance’s “The 8:30” described as a potential “clearing event” for a market rerating many investors had long anticipated.
Hedge fund net leverage recorded its largest decline since March 2020 last week, with net leverage excluding short positions falling 3.7% to 43.3%, the steepest such drop since Liberation Day in April 2025.
Some market observers see that deleveraging as a healthy development, suggesting that speculative excess is being unwound rather than signaling a more dangerous breakdown in sentiment.
The next major test for the rally’s durability arrives this week in the form of the Consumer Price Index report, which will be closely scrutinized for any signs of renewed inflationary pressure.
Investors are also watching earnings from two prominent AI infrastructure companies: Nebius (NASDAQ: NBIS), whose shares have already climbed 9.85%, and CoreWeave (NASDAQ: CRWV), up 7.02% heading into its results.
CoreWeave in particular has come to epitomize broader anxieties surrounding the pace and sustainability of AI infrastructure spending, making its earnings release one of the most consequential data points of the week.
The two so-called Neo Cloud companies sit at the center of debates about whether enterprise demand for AI computing capacity can justify the enormous capital commitments being made across the industry.
Whether the post-midterm momentum holds will depend heavily on how those earnings land, alongside the inflation data, as markets search for confirmation that the recent gains rest on solid fundamental ground.
