AI Stocks To Propel Growth, Summer Likely To Trigger Defensive Shift: Top Wall Street Analyst

A team of quantitative equity analysts at Citigroup, led by Chris Montagu, has highlighted the continued importance of AI-related stocks in bolstering the growth equity style. 

These stocks, primarily consisting of mega-cap companies, are expected to provide further support during the final hiking cycle of the Federal Reserve, according to Montagu. The team maintains a bullish stance on growth equities while remaining bearish on value stocks in the near term. As of June 6, the Vanguard Growth ETF VUG has outperformed the Vanguard Value ETF VTV by 28% year to date.

Chart: Growth Vs. Value In 2023

Low Stock Participation Poses a Potential Risk

May has witnessed a low stock participation rate, indicating investor caution and presenting a potential risk going forward. This trend calls for careful consideration as market dynamics evolve.

Less than 50% of U.S. stocks ended May in positive territory."The old adage 'Sell in May' may be a reasonable explanation for this, but the fact is that the low stock participation presents a risk going forward that investors should be mindful of," Montagu wrote in a note.

Investor Defensiveness Expected as Summer Approaches

As summer approaches, Citigroup analysts anticipate investors to maintain a defensive positioning, seeking stability through larger-cap equities as a hedge against uncertainties. The demand for safer and defensive equities is expected to persist, with a specific focus on classic defensive styles such as low-risk, quality, and large-cap stocks.

Read also: Rising Above Recession: Goldman Sachs Anticipates July Rate Hike, Risk Assets Poised To Scale Wall Of Worry

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