(Bloomberg) -- Citigroup Inc. has reaffirmed its underweight call on American equities and negative view on credit in the wake of the US banking turmoil.

US stocks may underperform their peers, given that the world’s largest economy is expected to slip into a recession in the second half, strategists including Dirk Willer and Yasmin Younes wrote in a note Thursday. “The downside would be very material” should the problems in the financial industry persist, they added.

“The banking sector stress in the US raises the question if something sufficiently large has broken to change the dynamics of the US business cycle,” the strategists wrote. “While it is possible that authorities managed to restore confidence with respect to deposits, it is by no means certain.”

Citi’s bearish view on risky assets reflects the growing global headwinds as the collapse of three US lenders and Credit Suisse Group AG’s troubles threaten to damp the world economy. But some investors are on the hunt for buying opportunities amid rising speculation that the Federal Reserve may be approaching the end of its tightening cycle.

It’s rare for the S&P 500 Index to decouple from banks “and sharp selloffs in banks are usually coincident with sharp selloffs in overall equity markets,” the strategists wrote.

Outside of the US, Citi is negative on emerging Asia shares excluding Japan and China due to concerns about the semiconductor industry. However, it remains bullish on Chinese equities as it sees the reopening trade extending, while maintaining a long position in defensive UK sectors.

The Wall Street bank is staying bearish on credit and holds an underweight position in US corporate bonds, both investment-grade and high-yield. It has an overweight stance on emerging-market junk notes as it expects the dollar to weaken and developing markets to outperform into a US recession.

In the fixed-income market, Citi has added an overweight position in US real rates and neutralized its underweight stance in Japan. “Given a more dovish Fed and a weaker growth outlook, duration had become more attractive,” the strategists wrote.

©2023 Bloomberg L.P.