Citi recommends going long on high-quality stocks into the summer

Market Overview & Geopolitical Risk - Equity investors are largely comfortable ignoring geopolitical risks unless oil prices significantly increase [2] - The market recovery suggests reassurance that equity investors can overlook geopolitical risks if oil prices remain stable [2] - Geopolitical risks are primarily assessed through the channel of oil prices [3] Investment Strategy & Positioning - The firm recommends a long position in high-quality US equities due to earnings growth, high valuations, and headline risks [4][5] - A rotation from growth stocks into quality stocks is advised due to changes in the interest rate market [6] - Institutional investors had significantly recovered their positioning, though slightly less heavy than in late February [8] - Positioning is considered pretty full, close to levels seen in mid to late February, but not underweight [9] Sector Analysis - Energy sector is generally underowned and not considered a core part of quality stocks, but potential persistence of geopolitical risks may force positioning [10][12] - Large-cap banks are favored due to a seemingly good operating environment, while regional banks are considered tricky due to lack of sponsorship for lower quality trades [18] Macroeconomic Factors - A weaker dollar is a tailwind but could become a concern if it becomes too volatile, potentially signaling the end of US exceptionalism [13] - Foreign investors are hedging more of their dollar risk [15] - Strong Q1 earnings, particularly from Hyperscalers doubling down on capital expenditure, have reinforced the AI trade and attracted investors back to US equities [13][14]