Citi trims U.S. and Tech, boosts Europe as AI jitters hit markets

What changed at Citi

Citigroup strategists led by Beata Manthey cut their stance on U.S. stocks and the global technology sector to neutral and upgraded European equities excluding the U.K. to overweight. They pointed to Europe's smaller exposure to AI turbulence and the region's bigger boost from falling oil prices.

The shift followed a whiplash week tied to a Democratic sweep in U.S. midterms and mounting concern over stricter AI regulation. The S&P 500 logged its largest weekly drop since April 2025, and the Nasdaq 100 saw $2.3 trillion in market value erased on Thursday. Europe's Stoxx 600 ended the week up 0.2%.

How Citi is positioning now

Manthey said the team's global sector mix is a barbell of economically sensitive cyclicals alongside defensives. Healthcare was lifted to overweight, joining materials already there.

Citi remains constructive on AI over time, but it sees room for more downside before sentiment settles and earnings revisions set a sturdier floor for the trade. "We worry that positioning on key indices, such as the Nasdaq, could reset lower into net-short territory," Manthey wrote, adding that while Tech took the hardest hit, the volatility spread widely. She also said, "We argue that more value, or more quality parts of the market, some defensives, could outperform in this type of environment."

Europe's setup and Goldman's take

Europe's more diversified market - with a mix of steady industrials, banks and classic defensives - helped it dodge the worst of last week's turmoil as global investors trimmed AI-linked exposure. Goldman Sachs strategists noted Europe captured less of the AI upswing, which now looks like a plus.

Goldman's team including Guillaume Jaisson estimates AI infrastructure represents roughly 15% of the Stoxx 600, with a contribution of under one quarter to the 9% earnings growth expected for 2027. In the U.S., comparable names comprise around 40% of the S&P 500, accounting for more than two thirds of next year's projected earnings growth. Their takeaway: with lower concentration, Europe diversifies better when the AI trade reverses, and across the eight biggest AI led selloffs since 2023, Europe beat the U.S. every time.

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A Bloomberg chart shows weeks when the S&P 500 declined by at least 1.5%, grouping them by whether the Stoxx Europe 600 also fell or finished flat to higher. None occurred in 2017, and the data was captured at the European close on November 6, 2026. That positive finish for the Stoxx 600 marked the fifth time in 2026 it held up while the S&P 500 dropped by 1.5% or more.

Why this matters for your portfolio

Citi's tilt toward Europe reflects a simple math: less AI concentration means fewer shockwaves when that trade wobbles, and cheaper oil sweetens the backdrop for the region. At the same time, Citi's barbell - cyclicals plus defensives - signals they see a choppy tape where quality and healthcare can keep their footing.

The bottom line: if AI driven megacaps keep steering U.S. returns, swings can be sharp. Europe's broader mix has recently cushioned those blows, and both Citi and Goldman see that pattern holding when AI enthusiasm cools. Manthey and her colleagues still expect a constructive 2027 overall, pointing to lower interest rates, firm economic readings, and a potential easing of geopolitical risks.

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