• Firm had been overweight American shares since October 2023

• S&P 500 is down about 4.5% in 2025 while Chinese shares are up

Citigroup Inc. downgraded US equities to neutral from overweight while upgrading China to overweight, saying that US exceptionalism is at least on pause.

The US investment bank had been overweight American stocks since October 2023, but the hiatus in their ability to outperform has become more obvious, Dirk Willer, the firm’s global head of macro research and asset allocation, wrote in a note.

Meanwhile, he said, Chinese stocks look attractive even after their recent rally, given DeepSeek’s artificial-intelligence technology breakthrough, the government’s support for the tech sector and still-cheap valuations.

“The news flow from the US economy is likely to undershoot the rest of the world in coming months, and at least tactically, US exceptionalism is therefore unlikely to roar back,” Willer wrote. The neutral take on US stocks is over a three- to six-month time frame, and more negative US data prints are expected, he added.

Citi’s move came as the latest selloff on Wall Street indicated growing concerns about the once seemingly-unstoppable resilience of the US economy that had dictated trading for more than a decade. The tariff war and spending cuts launched by President Donald Trump, as well as his refusal to rule out the possibility of a recession have deepened such worries.

Willer and his team in November cautioned that US exceptionalism trades “may be at risk from an end to the Ukraine war” though “it is too early to position for that.” They also said it was too early to position for Chinese equities’ outperformance despite potential local stimulus.

Meanwhile, cheaper and better alternatives have emerged to accelerate the shift away from US assets. The advent of China’s AI startup DeepSeek has called into question America’s technological dominance, while Germany’s plan to significantly raise spending is being hailed as a watershed moment in European policymaking.

HSBC Holdings Plc strategists also downgraded US equities to neutral on Monday saying they “see better opportunities elsewhere for now.” They upgraded European equities, excluding the UK, to overweight from underweight saying they expect euro-zone fiscal stimulus to be “a potential game-changer.”

While the S&P 500 has lost 4.5% so far this year, a gauge of Chinese stocks listed in Hong Kong has surged 20%, making it one of the best-performing indexes in 2025. Germany’s DAX Index has advanced about 14%.

Chinese stocks were more resilient on Tuesday with a key gauge of those listed in Hong Kong barely down in mid morning trade after the S&P 500 slumped 2.7% on the previous day.

For two years in a row, stock-market forecasters at firms including JPMorgan Chase & Co. raised their expectations for the S&P 500 Index repeatedly to keep up with an inexorable rally.

Just under three months into the year, many sell-side strategists have to begun to moderate their rosy forecasts for 2025 as Trump’s tariffs fuel fears of slowing economic growth and sending US markets into a spiral.