LIVE MARKETS-Wall St's wobbles: Recession or rotation?

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WALL ST'S WOBBLES: RECESSION OR ROTATION?

As U.S. stocks flirt with correction territory, Citi is asking a key question: is the flight from growth stocks a sign of recession, or simply a rotation towards cheaper, overseas plays?

Strategists at the US bank bet rest-of-the-world (RoW) stocks can keep rising, sustaining their recent outperformance.

However, their rationale hinges on a delicate balance: a U.S. slowdown that stops short of recession, along with improving growth elsewhere that boosts corporate profits.

"If markets become more worried about a proper U.S. growth slowdown, this would likely spill over into the RoW. Indeed, investors could then rotate into a more 'Defensive' U.S.".

Reinforcing this point, Citi recalls that European earnings are increasingly correlated with U.S. peers and that Europe has never avoided an earnings contraction around U.S. EPS recessions.

(Danilo Masoni)

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