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 (ARCA: VUG) has outperformed the Vanguard Value ETF (ARCA: 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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