Citigroup warned that growing safety concerns around artificial intelligence could threaten the impact of AI on corporate earnings, prompting the banking giant to take a more cautious stance on U.S. stocks.
A team led by Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, warned in a Sunday note, reported by MarketWatch, to clients that a slowdown in AI model development could “crimp” earnings-per-share (EPS) revisions.
The team also identified the upcoming November midterm elections, rising bond yields, and surging oil prices as potential cross-asset headwinds for stocks. They believe these factors could weaken the equity rally’s key pillar if the EPS story comes under scrutiny.
The Citigroup strategists also highlighted that last week’s 0.8% drop in the S&P 500 was due to stocks falling prey to macro risks without the protection of earnings. They predict a challenging period for equities, with no earnings, a seasonally weak September, and a summer pullback setting a “higher bar to re-engage.”
Kaiser and team said that companies tied to power generation and data centers could be more sensitive to midterm election-related news flow than semiconductor and memory stocks. However, the bank noted that growing AI safety concerns could also weigh on investor enthusiasm, similar to what happened in early February.
