Moore: Why I’m Still Betting On Stocks

Citi Wealth CIO Kate Moore said surging bond yields, AI-driven market enthusiasm and political shocks could reshape market performance through 2027. She continues to favor equities over duration, but advises investors to become more selective amid elevated rate and political risks.

Analysis

This is not a standalone Citi catalyst; the investable signal is a regime preference for nominal-growth beneficiaries over long-duration assets, with a higher bar for AI exposure. If real yields remain elevated, equity leadership should narrow toward firms with near-term free-cash-flow conversion and pricing power, while unprofitable software, highly levered small caps, and long-duration REIT/utilities remain vulnerable to multiple compression. For C, higher rates support client cash yields and net interest income only to the extent funding costs and credit normalization remain contained; a steepening driven by term premium is less constructive for bank valuations than a growth-led steepening.

Over the next 1-3 months, the critical transmission channel is whether higher yields reflect resilient nominal activity or fiscal/political risk. The former supports Financials Select Sector SPDR Fund (XLF) relative to Utilities Select Sector SPDR Fund (XLU); the latter raises discount rates without improving earnings and can pressure both equities and bank tangible-book multiples. Into the 6-18 month election cycle, headline-driven volatility could create entry points, but consensus AI positioning makes companies with weak monetization evidence especially exposed to guidance resets. A sustained move higher in credit spreads, rather than Treasury yields alone, would falsify a constructive equity-over-duration view.

The contrarian risk is that selective-equity positioning has become an implicit consensus trade: investors are broadly underweight duration-sensitive assets after the yield repricing. A material payroll or inflation downside surprise could trigger a rapid rates rally and a sharp reversal in the crowded quality/financials-over-duration factor trade. Treat broad strategic commentary as a positioning framework, not confirmation of incremental earnings information for C.

Key Decisions for Investors

• No standalone C trade on this commentary. Maintain C only where the thesis is supported by observable capital-return, expenses, and credit metrics; reassess if CET1 deployment is delayed or net charge-off guidance rises.
• For a 1-3 month rates-expression, prefer a modest long XLF / short XLU pair if the 10-year yield rises alongside stable or tighter investment-grade spreads. Exit if IG option-adjusted spreads widen materially or the 10-year yield rise is driven by a weak Treasury auction/fiscal-risk episode rather than improving growth data.
• Reduce exposure to AI names lacking disclosed revenue conversion or credible 2026 free-cash-flow support; retain profitable infrastructure beneficiaries rather than adding broad AI beta through thematic ETFs. The next earnings cycle is the catalyst: defer new longs until bookings, backlog conversion, and capex guidance validate monetization.
• Keep duration hedges flexible rather than structurally short Treasury bonds. A downside inflation or labor-market surprise can produce a fast 1-3 month duration rally; use this as an alert to cover financials-over-duration factor exposure rather than chase yield highs.