Citi says US exceptionalism has paused under Trump — and investors should load up on China stocks

• Citi strategists advise taking profits in US stocks and buying China shares.

• America’s economic edge has dulled under Trump, impacting consumer sentiment and stock performance.

• China’s tech advances and favorable valuations make the country’s stocks attractive despite tariff risks.

A pause in US exceptionalism suggests now is the time to take profits in US stocks and buy shares of companies in China, Citi strategists said in a Monday note.

The bank downgraded US stocks to “Neutral” and upgraded China stocks to “Overweight” on an idea sweeping Wall Street

in recent weeks: America’s economic edge has dulled in opening days of the second Trump administration.

Tariff policies and sweeping layoffs of federal employees have dinged consumer sentiment to such a degree that management teams at economic bellwethers like Delta Air Lines have warned of an imminent growth slowdown.

“This may be the last strong employment report, as DOGE cuts, voluntary resignations, and the weaker economy kick in,” the strategists, led by Dirk Willer, said, referring to the February employment report published last Friday.

Now, investors are pricing in rosier growth prospects for Europe and beyond, evidenced by their stock markets surging to record highs while the S&P 500 flounders.

For Citi strategists, the near-10% decline in America’s stock market is a good enough reason to start taking profits.

“After entering bubble territory, we are more vigilant on protecting profits,” Willer said.

The recent downside violation of the S&P 500’s 200-day moving average and the inability of the “Magnificent 7” stocks to catch a bid were two bearish signals that were too big for Willer to ignore.

“When 4 out of 7 ‘generals’ are fading, for at least 5 days, during bubbly periods, it is also a warning signal,” Willer explained.

Willer said the American AI trade should bounce back in the long term, but it will likely struggle for the next three to six months.

“In the bigger picture, we doubt that the AI bubble is already fully played out, and we would expect for the US to remain one of the leaders, maybe jointly with China, while the AI theme is intact,” Willer said. “But for the reasons mentioned above, we believe this is unlikely to be the right view for today, as we expect more negative US data prints.”

As to Willer’s upgrade of China stocks, the strategist highlighted DeepSeek’s technological breakthrough as proof that the country’s technology “is at the Western technological frontier (or beyond).”

The note highlighted that Alibaba and Tencent followed up with their own impressive AI models in recent weeks.

The note said that combined with compelling valuations and President Xi’s recent embrace of the tech sector, now is the time to buy China-based stocks, even with lingering tariff risks amid Trump’s trade war.

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