US equity rally not over yet, says Citigroup

US stock markets may have hit record highs recently but the rally is showing no signs of fading out any time soon, according to analysts at Citigroup.

Despite the S&P Composite now sitting 38% above its 2007 high, “the US bull market just won’t die,” Citi said.

The bank’s US equity strategist Tobias Levkovich remains constructive on his asset class, although he does not recommend chasing it too hard right now.

“Consistent outperformance in this cycle means that the US equity market now looks expensive compared to other markets. But on a free cash flow yield of 4.1%, the US does not look expensive versus other markets. Share buybacks, debt-financed M&A, and low equity issuance means that the US equity market is shrinking, while other markets continue to equitise.

“Our contrarian instincts and potential volatility around the Presidential election make an ‘underweight’ US stance tempting, but we stay ‘neutral’.”

Citi is ‘overweight’ emerging market equities and ‘underweight’ Europe ex UK.

“Those more inclined to stand in front of the S&P juggernaut should understand that the US stock market shows some characteristics which remain highly desirable to global investors. Some time it will be right to reverse this classic momentum trade, but we prefer to pick our fights elsewhere.”