Citigroup Inc. strategists have downgraded US equities and the global technology sector after a turbulent week battered major American stock indexes. The team upgraded European stocks, excluding the UK, as lower exposure to artificial intelligence offered the region some protection from the turmoil.
The Citi team, led by Beata Manthey, acted after the Democratic sweep in the US midterm elections triggered a dramatic week across global markets. Concerns about tighter regulation of artificial intelligence drove sharp selling in technology shares.
The S&P 500 suffered its biggest weekly decline since April 2025. The Nasdaq 100 lost $2.3 trillion in value last Thursday alone, while Europe’s Stoxx 600 finished the week 0.2% higher.
Citi moved both the US market and technology sector to neutral. At the same time, the strategists raised Europe, excluding the UK, to overweight and pointed to the region’s greater potential benefit from falling oil prices.
The firm remains positive about the outlook for artificial intelligence. However, Manthey said in a client note that additional selling could occur before sentiment stabilizes and earnings revisions provide a stronger foundation for the trade.
“We worry that positioning on key indices, such as the Nasdaq, could reset lower into net-short territory,” Manthey wrote. “While the selloff has been most aggressive in Tech, volatility has been broad-based.”
Europe’s more diversified stock market has become an attractive option as global investors attempt to reduce exposure to stocks linked to artificial intelligence. The region’s combination of industrial companies, banks and defensive businesses helped it avoid the worst of the previous week’s market turbulence.
Goldman Sachs Group Inc. strategists offered a similar assessment in a separate note. They said Europe captured less of the gains generated by artificial intelligence, but that reduced participation is now becoming an advantage as the trade reverses.
Artificial intelligence infrastructure accounts for about 15% of the Stoxx 600. It also represents less than one quarter of the 9% earnings growth that Goldman expects for the European benchmark in 2027.
The contrast with the United States is substantial. Artificial intelligence infrastructure stocks make up roughly 40% of the S&P 500 and account for more than two thirds of the index’s projected earnings growth for next year, according to the Goldman team.
“This lower concentration provides diversification when the AI trade reverses: across the eight largest AI-led selloffs since 2023, Europe outperformed the US every time,” said the Goldman strategists, including Guillaume Jaisson.
That difference in market concentration has placed Europe in a comparatively stronger position during periods of pressure on artificial intelligence shares. Its exposure is spread across a broader collection of sectors rather than concentrated as heavily in the companies driving the artificial intelligence trade.
Citi also adjusted its global sector strategy in response to the shifting market environment. The strategists described their approach as a barbell combining economically linked cyclical stocks with defensive shares.
Healthcare was upgraded to overweight, joining materials in that category. The changes reflect Citi’s preference for exposure to both economically sensitive businesses and defensive companies while volatility remains widespread across markets.
Despite the recent upheaval, Manthey and her colleagues continue to hold positive market targets for next year. They said lower interest rates, resilient economic data and the possibility of easing geopolitical risks should support markets, even as artificial intelligence positioning faces the potential for further selling.