How to Trade This Week? CitiGroup Gives Advice

Recommend taking profits on 'Trump trade'

As the US election approaches, global investors are focusing on the fierce competition between Trump and Harris. Considering that Trump's chances of winning are weakening and the "Trump trade" may be overpriced, Citi believes that it is time to take profits on the "Trump trade" and pay special attention to the trend of US stocks and the US dollar after the election.

Earlier this week, Citi's Dirk Willer analyst team released a research report pointing out that the market has partially priced in the possibility of Trump's victory, indicating that the risk-reward ratio of Trump-related transactions has deteriorated. Therefore, Citi believes that investors should take profits on some Trump-oriented positions, especially those assets related to Trump's policies and improved polls. These assets have performed well since the last non-farm report, but Citi believes that the current risk-reward ratio is no longer attractive.

The report shows that based on analysis of historical data and market behavior, investors who make investment decisions based on market trends after the election results are released tend to get positive returns, especially on the S&P 500 Index (SPX) and the U.S. Dollar Index (DXY).

Citigroup maintains overweight stance on U.S. stocks

Although the market is concerned that rising interest rates may put pressure on the stock market, Citi's analysis shows that a sharp rise in interest rates is not necessarily bad for the stock market. In a stress scenario, even if the US 10-year Treasury yield may rise by 30-40 basis points, historical data shows that the impact of such a change on the stock market is not obvious, and in some cases, stock market returns may be positive.

Citi found through the VRP signal that the market may be tactically oversold, indicating that the market may have overreacted to the uncertainty of the election. They believe that despite the uncertainty in the market before the election, the market shows signs of "too much fear" and may rebound when the election results are positive. In addition, seasonal factors also support a rebound in the market before the end of the year, so Citi maintains an overweight position on US stocks.