By Sam Boughedda
Citi analysts said in a note to clients on Monday that they are preparing for volatility in the first quarter of 2023.
The firm's broader market call is for a weaker start to the year, with a stronger finish, the analysts declared.
"We position more defensively for now. Health Care, Industrials, Energy and Real Estate are Overweight. Consumer Discretionary, Consumer Staples, and Financials are Underweight. Industry group dispersion within sectors is a component of our 2023 outlook for increasing dispersion effects," the analysts wrote.
In addition, Citi is looking for Industrials fundamental resilience, "specifically via Capital Good which includes Aerospace & Defense," while they believe "Energy appears reasonably valued following its recent pullback coupled with a Citi positive Commodity strategy view regarding oil in 2023."
Furthermore, Citi remains cautious on the consumer. "Our description of a 'consumer-led' recession is consistent with an ongoing Underweight call on Consumer Discretionary," they added. "Consumer Staples moves to Underweight as well. Yet, we are less negative on Automobiles & Components, which is lifted to Market Weight."
Information Technology was lowered to Market Weight following last quarter's upgrade, and the fact that the rate relief rally Citi expected for Q4 has mostly played out, while they kept the Financials sector at Underweight, based on negative outlooks for Diversified Financials and Insurance.